Iran Pulls Ahead of Saudis in Fastest-Growing Oil Consumer

(Bloomberg) -- Iran is pulling ahead in the race for market share in the world’s fastest-growing oil consuming nation, India, weakening the hold of rival OPEC members amid the group’s struggle to agree on output cuts.

Iran, which dramatically boosted crude sales in 2016 after they were curbed for years by sanctions over its nuclear program, is challenging the sway of Saudi Arabia and Iraq as it offers perks for refiners to help rebuild its standing in Asia’s third-largest economy. Cargoes to fill strategic petroleum reserves helped Iran emerge last month as India’s biggest supplier for the first time in 2016, according to data compiled by Bloomberg.

Iran’s progress in building market share assumes significance amid a glut that’s more than halved oil prices since 2014. Members of the Organization of Petroleum Exporting Countries meet Wednesday to try to finalize the terms of a production decrease with some countries, including Iran, reluctant to agree to reductions. India’s $2-trillion economy imports more than 80 percent of its crude requirement and the International Energy Agency expects it to be the fastest-growing consumer through 2040.

“Everyone is looking for an alternative to Saudi crude because of high dependence,” said R. Ramachandran, director of refineries at India’s second-largest state-run oil processor Bharat Petroleum Corp Ltd. “Iranian crude can provide a better yield pattern in some cases and can be fetched within a week. It will gradually compete with Saudi and Iraqi crude for higher share in India.”

Iranian supplies in October rose 56 percent to 759,700 barrels per day from a month ago, while shipments from Saudi Arabia were 717,000 barrels per day and Iraq’s 488,000 barrels a day, shipping data compiled by Bloomberg show.

In the July-September quarter, Iran overtook Venezuela to become India’s third-largest crude supplier, with shipments growing 51 percent from the previous quarter. The top shipper Saudi Arabia saw sales climb 10 percent, while Iraq’s grip on the No. 2 position loosened with an 8 percent drop.

Brent crude traded 0.9 percent lower at $47.80 a barrel on Tuesday. The decline came as a deal among OPEC members to reduce production looked increasingly shaky. Both Iraq and Iran have resisted cutting their own production, but need an OPEC deal to benefit from any price increase.

Freight Discount

Iran has offered attractive terms like 80 percent freight discount and 90 days of credit this financial year, Indian Oil Corp.’s Director Finance A. K. Sharma told Bloomberg in September. Imports from the nation may rise further once it starts exporting its new heavy grade as that will be preferred by companies like Reliance Industries Ltd., owner of the world’s largest refining complex, said London-based Ehsan Ul Haq, principal consultant at KBC Advanced Technologies.

One wrinkle in the story may be the $13 billion acquisition of Essar Oil Ltd.’s Vadinar refinery by Russian giant Rosneft PJSC and a consortium of Trafigura Group and United Capital Partners. Rosneft may supply the refinery on India’s west coast with Venezuelan crude, hurting Iran, according to Tushar Tarun Bansal, director at Ivy Global Energy.

For now though, Iranian crude continues to be attractive for Indian refiners.

Imports from Iran by state-run Mangalore Refinery and Petrochemicals Ltd. and Bharat Petroleum are being used to fill India’s strategic petroleum reserves in Mangalore over October and November. The nation has bought six million barrels of Iranian crude for the 1.5-million-metric-ton underground cavern.

“With old buyers such as MRPL returning, Iranian crude is expected to see increased demand in India, displacing other Middle Eastern barrels,” said Ivy Global Energy’s Bansal. “The Saudis are seen as a more reliable supplier than Iraqis and their quality is also more stable, hence Iraq is expected to see greater impact overall.”

To contact the reporter on this story: Dhwani Pandya in Mumbai at dpandya11@bloomberg.net. To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net, Candice Zachariahs, Sungwoo Park