India Oil Tanker Wagons
India to further diversify sources of crude oil imports.Reuters

Taking advantage of lower oil prices and the global glut, India is looking to build a huge reserve of petroleum.

Reuters, citing two sources familiar with the matter, reported that India's oil ministry instructed state refiners Indian Oil Corp and Hindustan Petroleum Corp to each seek two very large crude carriers (VLCC) of Basra oil for arrival in May-June, totalling eight million barrels.

One of the sources said the ministry is expected to issue tenders in March after the federal cabinet approves the decision in a meeting next week. A committee of directors suggested Basra oil as it suits refineries on India's east coast, the source said, adding the strategic petroleum reserve (SPR) will only be used in case of supply disruptions.

For the purpose, India's finance ministry has allocated 24bn rupees (£260m, €361m, $383m) from revised budget estimates for the current fiscal year for the first SPR.

In February, India, which is the world's fourth biggest oil consumer, built its first underground SPR in Andhra Pradesh with a capacity to hold 9.75 million barrels of oil. India has planned for three SPRs that will hold more than 36 million barrels of oil, enough to cover about 13 days' supply for India.

India's additional purchases could temporarily help offset the impact of an expected halt in stocks build from China and the start of spring maintenance at Asian refiners, the news agency added.

India's move is considered good news for Iraq, which is struggling to find buyers due to the deteriorating quality of Basra crude.

Oil prices have declined more than 50% since June 2014. The benchmark Brent crude is trading down 1.06% at $55.32 per barrel as at 02.33 am ET.