DUBAI/NEW DELHI (Reuters) - Reliance Industries will not renew a contract to import crude oil from Iran for financial year 2010, two sources familiar with the supply deal said on Thursday.
India’s top privately run refiner did not purchase any Iranian crude in February and March, the sources said, in line with a trend that has seen its purchases from the Islamic republic shrink rapidly over the past year.
It is not immediately clear why Reliance is not renewing its annual import deal with the world’s fifth-largest oil exporter, but sources said it could be due to a price disagreement when the refiner has easy access to competing grades.
“Currently for 2010 as of now, we don’t have a term contract with Reliance,” said a National Iranian Oil Co (NIOC) source who declined to be named on company policy.
“It has nothing to do with the U.S.,” he said, adding that the deal has not been renewed due to differences over pricing of Soroush and Nowruz crudes.
While the 90,000-100,000 barrels per day (bpd) of Iranian crude Reliance bought last year made up only 8 percent of its overall purchases, and just 2.4 percent of Iran’s sales, the move underscores a drift in Asia away from crude sourced from Iran.
Japan’s Iranian crude imports in 2010 are set to fall 11 percent on year to the lowest in 17 years, sources say, also citing high prices for Iranian grades, while China’s purchases from Iran fell nearly 40 percent in the first two months of the year.
For a graphic of Reliance’s crude imports from Iran, click
Reliance did not respond to Reuters enquiries on the move and Iranian officials declined to comment on the record.
In January, Reliance’s monthly crude imports from Iran fell 13 percent and shrank by a sharp 83 percent on a year ago.
Reliance’s sophisticated complex at Jamnagar in western Gujarat state can refine 1.24 million bpd of crude as varied as light West African to heavy sour Middle East grades, allowing it to switch to whatever crude is cheapest.
The acceptance among Asian refiners of Russia’s new ESPO blend crude offers Reliance another option.
“It could be they are not happy with the general reluctance of NIOC to drop their prices especially with more attractive competing grades like Russia’s ESPO coming onto the market,” said an Asia-based trader.
Crude from the East Siberian-Pacific Ocean (ESPO) pipeline is gaining favour among refiners in Asia due to its attractive price and quality versus the Gulf’s heavier sour grades.
“Reliance has been importing mainly Soroush and Nowruz from Iran, this is very heavy and extremely sour,” a trader said.
“If they can get a crude that is lighter and less sour and pay less, why would they not do it, at the end of the day they want to maximise their yields.”
ESPO’s API gravity is around 34 degrees, with sulphur content pegged around 0.6 percent, while Soroush and Nowruz have a sulphur content of up to 3.5 percent with the API, a gauge of how light or heavy a crude is in relation to water, at 18 to 19.
“It’s probably price. The U.S. government is not particularly trying to cut off crude,” said John Vautrain, senior vice president of Purvin & Gertz Inc. “Cutting off crude has the potential to create some serious ramifications in global crude markets and that would penalise the whole world.”
Trading sources said pressure from the United States and its allies, who are seeking to force Iran to stop its nuclear programme with tougher sanctions, may be another reason for the Reliance move.
“There is some politics involved with this as well, and at some level there seems to be a general move by people to distance themselves from dependence on Iran as a crude supplier,” a trader said.
Reliance stopped shipping gasoline to Iran in May 2009 on U.S. pressure, as it looked to boost market share for its fuel in U.S. markets. Last month, it was reported that trading firms Trafigura and Vitol have halted gasoline sales to Iran.
China has agreed to serious talks with Western powers as U.S. politicians work on legislation to slap sanctions on suppliers of fuel to pile pressure on Iran.
President Hu Jintao will attend a multi-nation summit on nuclear security in Washington this month, though Beijing will continue to seek a peaceful solution to the Iran issue, officials said.
Iran rejects Western claims that the aim of its nuclear programme is to develop the capability to produce weapons, insisting it is for electricity generation.
An Indian government source said the United States was more concerned about those selling fuel to Iran rather than buying.
Purvin & Gertz’s Vautrain agreed. “The goal with sanctions is to sanction Iran, not to raise the price of crude,” “They are unlikely to have sought to cut off purchases by non-American companies.”
(Additional reporting by Alejandro Barbajosa in SINGAPORE; Editing by Ramthan Hussain and Michael Urquhart)
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