India set to buy Iranian oil for emergency reserves

Such purchases by the world’s No.3 crude importer would boost Iran’s drive to ramp up its oil shipments as it looks to regain market share following the lifting of sanctions over its disputed nuclear programme.

Oil markets have been keenly focused on Iranian export volumes over the last few weeks as they get closer to pre-sanction levels – a milestone that Tehran has said is a precondition for discussing a global output freeze to boost crude prices.

India, seeking to hedge against energy security risks as it imports about 80 percent of its oil needs, is building emergency storage in vast underground caverns to hold a total of 36.87 million barrels of crude, enough to cover almost two weeks of demand.

Three industry sources with direct knowledge of the matter said India would buy 6 million barrels of Iranian Mix crude from the National Iranian Oil Co in October and November to fill half the Managlore storage facility in the southwestern state of Karnataka. They declined to be identified as they were not authorised to speak with media.

State firm Bharat Petroleum Corp will buy 4 million barrels in two very large crude carriers (VLCCs) and Mangalore Refineries and Petrochemicals Ltd will import 2 million barrels, the three sources said. They did not give pricing details.

“The two refiners decided to buy Iranian Mix as it suits their refineries,” said one of the sources.

The step comes as Iran’s daily crude exports to India surged to the highest level in 15 years in August.

India in 2014 began talks to lease part of its strategic storage to Abu Dhabi National Oil Co (ADNOC). Under such a deal, India would have first rights to the stored crude in case of emergency, while ADNOC would be able to move cargoes to meet any shift in demand.

“Talks have not moved forward with ADNOC despite several rounds of discussion. We (India and the UAE) are stuck on commercial terms,” said one of the sources.

ADNOC, India’s oil ministry, BPCL and MRPL did not immediately respond to requests for comment.

To take advantage of falling oil prices pending the conclusion of a deal with the UAE, India’s oil ministry instructed BPCL and MRPL to select a grade to fill half the Mangalore facility, the sources said. They chose Iranian Mix.

The Indian side last week discussed Iranian oil purchases with Safar Ali Keramati, Deputy Director at National Iranian Oil Company (NIOC) for Crude Marketing and Operations.

“If (Indian customers) come to us for extra barrels, then we will do our best to accommodate their demand,” Keramati told Reuters.

The 9.75 million-barrel Vizag storage facility in east India is being filled with Iraqi Basra oil.

The start of operations at a third facility, at Padur in Karnataka, has been pushed back due to problems in acquiring land to lay a pipeline link to the local port.