Mukesh Ambani's Reliance Industries is boosting crude imports from Africa and cutting its dependence on the Middle East as the owner of the world's biggest refining complex seeks to benefit from shifting global oil flows caused by the U.S. shale boom.
African and Latin American crude, which together account for about 56 percent of Reliance Industries' imports now, have become cheaper as the United States slows purchases and increasingly turns to domestic shale oil, while Middle Eastern heavy crude grades are pricier due to demand from regional refinery expansions.
Reliance Industries is making the switch as it wants to cut its crude costs to stem a decline in its refining margins that hit a four-year low of $8.1 a barrel in 2013/14.
Reliance doesn't disclose its detailed crude imports, but tanker arrival data obtained from trade sources shows purchases from Africa in the first four months of 2014 rose 5 percent from a year ago to about 142,800 barrels per day (bpd), making up 12 percent of its overall imports.
Over the same period, its imports from the Middle East fell 1.4 percent to about 483,800 bpd and the share of Middle Eastern grades in imports declined to 40.7 percent, which, on a full-year basis, will be the lowest in at least eight years, the data showed.
The front-month Brent-Dubai price spread, also known as Exchange for Swaps (EFS), has softened over the past year and now averages near $4 a barrel, making African oil attractive at a time when freight rates have fallen.
The EFS, an approximation of the premium at which Atlantic basin light-sweet crude trades to Gulf heavy-sour grades, could ease later this year making African grades even more economical.
U.K.-based consultancy KBC Process Technology expects the EFS to average below $4 in the second half of this year, making tough grades from Africa that trade at a discount to Brent, attractive, said Ehsan Ul-Haq, its senior consultant.
"Reliance will probably handle heavier grades from Angola and it would also like to further raise imports of Latin American grade and some opportunity grades," said Ul-Haq.
Singapore-based consultancy FACTS Global Energy estimates the EFS will average about $3.1/ barrel in 2014, according to its senior analyst Praveen Kumar.
Despite a decline in the share of Latin American grades in Reliance's overall imports in January-April, traders and analysts expect the firm will lift its buying from the region in