India ponders Brazilian term crude deals amid supply squeeze

India is eyeing term crude deals with Brazil but analysts said high shipment costs, long sailing period and limited bandwidth with the South American producer to commit plentiful volumes beyond its traditional Asian customers will keep the size of any new term deals relatively small.

As India looks to diversify its crude buying, expectations of signing term deals with the Latin American supplier has grown after a visit of Brazilian Energy minister Bento Albuquerque to India in April.

Albuquerque held discussions with Indian petroleum minister Hardeep Singh Puri to explore the possibility of long-term crude oil contracts among other energy cooperation opportunities.

"We are keen on sourcing Brazilian oil under long-term special contracts," an Indian oil ministry official said, after the bilateral discussions.

Although New Delhi has expressed willingness to explore options for term Brazilian crude, Indian refiners remain skeptical for now about entering in term contracts for Latin American crudes as global prices remain high.

"Brazilian term crude imports at current prices above $100/b are not viable although imports are viable on a long-term basis if they are commercially competitive compared with other origins," said an official with one of the state-owned refiners.

Another Indian refinery source added: "We buy Brazilian crude mainly on a spot basis. Some other Indian buyers have contracts with Mexico."

Limited bandwidth

Regional traders said the bulk of Brazilian crude barrels coming to Asia mainly head to China and may not leave a lot of room for the South American supplier to commit a lot of crude for India.

"As far as Brazilian crude trades flows to Asia is concerned, these are all Chinese-bound trades and price is decided by Chinese demand," one regional trader said.

Furthermore, with longer delivery times and volatility in global crude pricing, entering into term contracts for Latin American crude is a challenge for now, sources said.

While it currently costs less than $4/mt and takes about four to six days to ship crude oil from the Middle East, it costs $15-$20/mt and takes more than 25 days to ship from Brazil to Asian destinations, market sources said.

"Whatever you buy, landed cost should make sense to alternative grades," the same Indian refinery source said. "In a term contract, it's the fixed volumes to be lifted, which is challenging."

Since last year, Indian refiners have been snapping up maiden import deals for newer crudes such as Guyana's Liza and Brazil's Tupi in a sign that one of Asia's fastest-growing oil consumers is looking to diversify its feedstock basket and have steady supply sources beyond the Middle East.

The purchases of newer crudes not only highlights the growing flexibility of Indian refiners, but also that refiners are keen to make spot purchases a relatively bigger part of their portfolios in order to take advantage of market fluctuations.

Last year, Mangalore Refinery and Petrochemicals Ltd. was believed to have bought its first-ever cargo of Brazilian Tupi crude, according to sources.

Traders said IOC also bought barrels of Norway's Johan Sverdrup crude for the first time last year, although there was no confirmation of this, either from the buyer or the seller.

HPCL-Mittal Energy Ltd. in 2021 also procured one million barrels of Liza crude in April, while state-run Indian Oil Corp. also said it had picked up 1 million barrels of Liza.

Not entirely new

Some market analysts said that Indian state-run refiners would be able to seal term deals for Brazilian crude as they are not entirely new for the country.

"I think one of the private refiners once had a small term crude deal with Brazil. So I think it's possible but the volume and the flexibility that will be offered in the contracts by the suppliers will matter a lot," said one South Asian oil market expert.

A recent joint statement from Brazil and India highlighted that the two sides recognized the importance of the robust investment in the Brazilian oil and gas sector made by Indian companies and reaffirmed their commitment to safeguard existing investments, while encouraging further bilateral investments. The two sides highlighted the importance of bilateral trade in oil and its by-products.

India meets around 85% of oil demand via imports and three-fifths of the overseas supplies are sourced from the Gulf countries such as Iraq, Saudi Arabia and the UAE.

The country, with a five million b/d refining capacity, is estimated to have contracted about 40 million barrels of Russian oil for delivery in April-June quarter since the Russia-Ukraine conflict started in late February, market sources said.

Private refiners are believed to have bought more than half of the contracted Russian crude, while the rest of the volumes were sealed by state refiners.

Earlier this month in the parliament, Puri defended the purchase of Russian crude by Indian refiners, saying the volumes were minuscule compared with total imports.