* Urals appeal widens, finds opportunistic demand in
India
* Russian Urals more economical than Oman crude
* India, Russia seek closer energy ties
Two of India's largest refiners, Reliance and the state-owned Indian
Oil Corporation, are setting their sights on buying Russian Urals
crude as the key export grade shows signs of competing with some
Middle Eastern sour barrels, market sources told S&P Global Platts
Friday.
In what traders are describing as an opportunistic move, the price
of Urals crude exported from the Black Sea port of Novorossiisk is
becoming more attractive to some refiners in India, as the OPEC-led
production cuts have reduced exports of Middle Eastern sour crudes,
pushing up their price differentials.
It is very unusual for India to buy Russian crude oil, but there are
signs the economics are proving more favorable than they have in the
past due to more interest from the East for Dated-Brent related
crudes, supported by lower freight amid robust demand for sour
crudes.
Traders said increased interest for Urals oil from Reliance, which
runs the world's largest refinery in Jamnagar, and IOC, which
operates 11 refineries in the country, bodes well for the Russian
Urals market.
Traders said IOC had bought a Urals cargo for end-March loading
while Reliance was looking for a parcel for end-March/early-April
loading dates.
Representatives from Reliance and IOC were unavailable for comment.
"The Asian grades have really gotten expensive [over the last few
months mainly driven by OPEC cuts] and India is now looking for
alternative crudes that are cheaper -- Urals is one of them," said a
trader.
Sources said India has expressed interest for Urals late last year,
with a couple of instances seen, but that before that there have
been very few cargoes of Urals exported to India in the past five
years.
URALS APPEAL GROWS
The appeal for Indian buyers to look at Urals crude becomes more
obvious when comparing delivered values to the West Coast of India
of Oman crude versus Urals loading from the Black Sea port of
Novorossiisk.
The cost of shipping a Suezmax of Med Urals to the west coast of
India (on a delivered basis) is around $1.50-2.00/b cheaper than
shipping a cargo of Oman crude to the same destination, according to
Platts data.
Sources said that Indian companies started increasing their Urals
Med intake late last year which directly links to Med Urals dropping
below the value of Oman crude in December as well as the exchange of
futures for swaps narrowing.
Historically and for the majority of 2016, Oman crude was trading
below Med Urals, with only occasional spikes in the other direction.
However, from December onwards Med Urals has been trading at a
constant discount to Oman crude.
The spread between these two crudes, which are similar in quality,
widened to its largest in over two years at the end of last week
when Med Urals stood at around a $4.00/b discount to Oman crude on a
delivered basis to the West Coast of India.
The front-month Brent/Dubai exchange of futures for swaps -- which
enables holders of ICE Brent futures to exchange a Brent futures
position for a Dubai crude swap -- was assessed at $1.32/b at the
London close Thursday, having consistently traded below $2/b this
year. The lower the premium of Brent over Dubai, the more attractive
it becomes for Eastern refiners to purchase Brent-related crudes
over Dubai-related crudes.
The EFS spiked to $2.60/b on December 1, 2016 before narrowing over
the first quarter to a 17-month low at $1.13/b on February 28,
Platts data showed.
Much of the move was attributed to a stronger Dubai complex, on the
back of OPEC-led production cuts. Some also pointed to Asia's strong
appetite for heavy crudes.
INDIA, RUSSIA CRUDE TIES
India which has recently emerged as the world's third largest crude
oil importer, has been hugely reliant on crudes from the Middle East
and West Africa, but it has been diversifying its suppliers over the
past few years.
Despite strengthening energy ties between the two countries, India
has not been an active buyer of Russian crude oil, mainly due to
economic and logistical issues. Urals crude which is exported from
the Baltic and Black Sea ports, involves long shipping voyages, and
even Russian ESPO crude is not very convenient for Indian refiners
to import.
But the Indian government has said recently that it has been
discussing a crude supply contract with some of Russia's key state
oil companies like Gazprom Neft and Rosneft.
The two countries have also been actively studying possibilities to
cooperate in a wide range of spheres, including exploration,
development, transportation and refining, according to Indian
government officials.
Late last year, Rosneft and a consortium led by Trafigura jointly
bought Essar Oil, which operates the 400,000 b/d refinery in
Vadinar, providing the companies an opportunity to expand their
footprint in India's growing
oil sector.
Sources have said that with this deal, there might be more
opportunities for Russian Urals to travel to this refinery in the
near future.
Russia also has plans to expand its only eastbound export pipeline,
ESPO, after 2020, when more opportunities for crude deliveries to
the Asian markets will emerge.
--Eklavya Gupte, eklavya.gupte@spglobal.com
--Marcel Goldenberg, marcel.goldenberg@spglobal.com
--Maude Desmarescaux, maude.desmarescaux@spglobal.com
--Edited by Maurice Geller,
maurice.geller@spglobal.com
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