ANALYSIS - India's Mideast Crude Imports Slump may Reverse.

Increased sales to the world's fourth-largest oil importer would come as a boon to Middle East producers, facing tough competition in Asia from Russia and other non-OPEC suppliers.

Gulf oil's share of imports into number two consumer China fell to around 45 percent in the first seven months of this year from 52 percent a year ago.

State refiners plan to boost capacity by at least 180,000 barrels a day (bpd) in the year to March 31, 2011, which with increased buying by existing state-owned refineries may restore Middle East crude's share in India's imports to 70 percent.

It had slumped to 65 percent in 2009/10 from above 70 percent in the previous four years, government data showed.

"India's refinery expansion is based on Gulf crude, so we see higher volumes coming from the Middle East in the current financial year than last year," Sushant Gupta, a senior analyst with energy consultancy Wood Mackenzie.

"Definitely, proximity is the key reason for sourcing higher volumes from there."

Suppliers from the region lost share in the south Asian nation when Reliance Industries built the world's largest refinery and mostly bought Africa and South America varieties due to favourable prices, dwarfing any additions in Gulf purchases by state refineries.

Indian state-run refiners prefer to source most supply directly from national oil companies, which normally sell at official selling prices, through annual contracts as part of efforts to provide transparency in crude purchasing.

 India's fast-growing economy would require crude imports to rise about 7 percent in the year ending March 31, 2011, following a 24 percent surge to about 3.2 million bpd a year ago, oil company officials and industry experts estimate.

State-run Indian Oil Corp is raising the capacity of its Panipat plant in the country's north by 60,000 bpd while a new 120,000 bpd refinery owned by state-run Bharat Petroleum Corp would soon start commercial operations. Both have facilities to process heavier sour crudes, typical for Middle East output, into cleaner-burning gasoline and diesel.

"Because of current market dynamics and capacity expansions based on processing heavy crude, I expect the Middle East share in Indian imports may rise to about 70 percent," said one Asian oil trader, whose firm regularly participates in Indian crude oil purchase tenders. He declined to be identified because he is not authorised to talk to the media.

Source : in.reuters.com