* Essar to supply refined fuel to Petrochina in debt deal -sources
* May look at taking Latin American crude from Petrochina
MUMBAI/NEW DELHI, May 20 (Reuters) - India's Essar Oil Ltd will sign a $1 billion loan deal with China on Tuesday that sources with knowledge of the matter said would be backed by supply of refined products to top state oil producer PetroChina.
Essar Oil could sign a preliminary agreement with China Development Bank (CDB) on Tuesday to borrow that amount during Chinese Prime Minister Li Keqiang's visit to Mumbai, his first foreign trip, the sources said.
The Indian firm, controlled by billionaire brothers Shashi and Ravi Ruia, has been replacing its rupee debt with lower-cost, overseas loans and has so far refinanced $481 million.
"As part of our initiative to dollarize our debt, we have been in discussion with several international banks, including Chinese banks. CDB is part of that conversation," Essar Oil said in a statement on Monday in response to an article in the Economic Times. It declined to confirm the deal.
The group hopes to refinance another $1.8 billion within the next three to six months, Essar Oil Chief Executive L. K. Gupta had said on May 10.
Details on pricing of the products and how shipments would be credited against the loan still need to be worked out, the sources said.
The deal could also signal a long-term tie-up on crude supplies, with Essar looking to take ultra-heavy Latin American crude from PetroChina, one of the sources said.
Crude oil producers in Latin America have been scouting for new buyers in Asia as the U.S. shale oil and gas boom has reduced demand for their heavy and ultra heavy crudes.
Essar has previously purchased Castilla crude from China National United Oil Corp, or Chinaoil, and Ecuador's Napo crude from Petrochina, trade sources said. The Indian refiner aims to meet about 30-40 percent of its oil needs from Latin America, Gupta said earlier this month.
"We have been sourcing a significant portion of our crude from Latin America. PetroChina is a strong player in this region and will thus continue to be an important trade counter party for us," Essar said in its statement on Monday.
Essar Oil, India's second-largest private refiner with a 405,000 barrels per day refinery at Vadinar in western India, is majority owned by London-listed Essar Energy.