Govt to import Iraqi oil to fill strategic reserves, says report

The government is set to import 8 million barrels of Iraqi oil to fill its first strategic petroleum reserve (SPR), taking advantage of cheap oil prices and lending some support to a market suffering from a supply glut.

The country's SPR purchases could temporarily help off-set the impact of an expected pause in China's strategic stocks build and the start of spring maintenance at Asian refiners.

The oil ministry on Tuesday instructed state-run refiners Indian Oil Corp (IOC) and Hindustan Petroleum Corp (HPCL) to each seek two very large crude carriers of Basra oil for arrival in May-June, totalling 8 million barrels, two sources familiar with the matter said.

The tenders are to be issued in March and plans call for the Cabinet to approve issuing tenders at its meeting next week, said one of the sources, who spoke on conditions of anonymity.

A committee of directors suggested Basra oil as it suits refineries on the country's east coast, the source said, adding it would be a one-off purchase for the SPR as the stocks would be used only in case of supply disruptions.

The finance ministry has provided Rs 2,400 crore (about $383 million) from revised Budget estimates for the current 2014-15 financial year to fill the first SPR.

"In Asia we are trading May cargoes and demand from India for Basra will tighten the prompt market and will make contango in the Asia and Dubai markets narrower," said Ehsan Ul Haq, senior consultant at UK-based consultant KBC Energy Economics.

Benchmark Brent futures have climbed off a six-year low hit in January but are still down over 50 per cent from last June at US $53 per barrel.

"It could weaken the price of Brent-linked crudes as traders were expecting India to buy sweet oil for its SPR. On the other hand it would be good news for Iraq, which has been struggling to find buyers because of the deteriorating quality of Basra," Haq said.

India, which is the world's fourth biggest oil consumer, in February built its first underground SPR in Andhra Pradesh with a capacity to hold 9.75 million barrels of oil.

The Vizag facility has two compartments of 7.55 million barrels and 2.20 million barrels. The smaller compartment will be used by HPCL for its 166,000 barrel-per-day Vizag refinery.

A total of three SPRs in the south will hold more than 36 million barrels of oil, enough to cover about 13 days' supply for the country in case of a supply disruption or extreme price volatility.

The two other SPRs, at Padur and Mangalore in southern Karnataka state, will have a capacity of 29.3 million barrels and are expected to be ready by October.

In addition to HPCL's Vizag refinery, the IOC's 150,000 bpd Haldia refinery and a 210,000 bpd refinery owned by Chennai Petroleum Corp, a subsidiary of IOC, can process Basra oil.

(Reuters)