MRPL to explore crude spot market

Singapore: India's largest buyer of Iranian crude is scouting for alternative supplies from the spot market to pre-empt a possible disruption in shipments from Iran after India's central bank closed a longstanding payment route for such transactions.

Mangalore Refinery and Petrochemicals Ltd, which buys more than half of its crude oil from Iran, has issued four spot tenders so far this week, the latest for loading as early as next month. The flurry of tenders will likely boost sentiment for the heavier, high-sulfur grades from the Middle East, whose premiums are declining in the spot market due to weak fuel oil margins. The company has so far sought 2.60 million barrels of low- and high-sulfur crude oil for February and March.

While both New Delhi and Tehran could be hard pressed to find an early resolution, there's greater pressure on Iran, which has been increasingly isolated from its customers due to trade restrictions and sanctions aimed at slowing down its nuclear programme.

For now, crude supplies from Iran appear normal, and both countries are trying to hammer out an alternative mechanism to continue trade after the Reserve Bank of India last week said all trade-related transactions with Tehran had to be done outside the Asian Clearing Union, used by Indian refiners to pay for Iranian crude.

Uncertainty

"But there's no guarantee (that normal supplies) will continue," a senior MRPL executive, who didn't wish to be named, told Dow Jones Newswires. MRPL had one crude cargo scheduled for loading from Iran yesterday.

A senior Indian official said on Tuesday that Iran has proposed a temporary payment channel through a bank based in Germany and has said it will continue usual shipments of crude oil to Indian refiners in January.

Although the United Nations' sanctions don't ban countries from buying crude from Iran, difficulties in financing such transactions have limited the number of trade partners. This has forced Iran to store large quantities of unsold crude oil in tankers, about 21.7 million barrels as of the end of November, the International Energy Agency said recently. Iran remains India's second-biggest crude supplier after Saudi Arabia.

A slew of spot tenders from MRPL has taken the regional market by surprise because of the prompt nature of deliveries sought by MRPL. One of the tenders issued yesterday seeks 650,000 barrels of high-sulfur crude — the kind it normally buys from Iran — for loading in February, when trade for Middle East crude is moving on to March-loading cargoes.

"It's a question of how many such prompt cargoes are available," said a Singapore-based crude oil trader.

It remains to be seen if other Indian refiners follow suit in seeking spot cargoes.

SBI to take precautions

State Bank of India will take suitable precautions to avoid possible US sanctions due to any dealing with the blacklisted Hamburg-based European-Iranian Trade Bank AG, a senior finance ministry official said yesterday.

New Delhi and Tehran have opened a temporary channel for oil-related transactions for January crude.

As per the arrangement, Indian oil companies will open accounts with state-run SBI, which will in turn deposit the payments for Iranian crude with EIH Bank.

The temporary channel was created after the Reserve Bank of India said late last month that all trade-related payments with Iran had to be cleared outside the Asian Clearing Union, a clearinghouse through which most India-Iran trade was being conducted.

But the new mechanism may also ruffle US feathers as the Treasury Department blacklisted EIH Bank in September, saying it provided a financial lifeline to Iranian companies that it alleges support weapons proliferation.

EIH isn't subject to sanctions by the United Nations or the European Union. But the US Treasury has barred it from conducting any business inside the US and frozen any assets it holds in the American financial system.

Indian firms dealing with the bank could face the same penalties under new US legislation passed into law by President Barack Obama in July.

The Indian ministry official, who wished not to be named, didn't elaborate what precautions SBI would take to avoid any potential US action.

"We can look at making the temporary arrangement more permanent if it works out. An Indian delegation will be visiting Tehran soon to discuss the issue," he said.