ONGC to charge premium over Brent in oil deals with BPCL and HPCL

Deregulation of the sale of domestically-produced crude oil appeared to be in favour of ONGC as the firm will charge a premium over Brent in oil deals with BPCL and HPCL. The ONGC has signed deals to sell about 4.5 million tonnes of crude oil each to Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) in which it will sell crude oil it produces from Mumbai offshore fields at a premium to international benchmark Brent.

According to a news report, the oil has been priced at the prevailing Brent crude oil price plus 1%. Brent, which is trading at $80, after the oil contract the ONGC would get $80 plus $0.8.

ONGC produces 13-14 million tonnes per annum of crude oil from its fields in the Arabian Sea, off the Mumbai coast.

Market looks steady as global equities head towards big monthly gains

In June last year, the government of India allowed firms like ONGC and Vedanta to sell locally produced crude oil to any Indian refinery for turning it into fuel, such as petrol and diesel, as it deregulated one of the last few avenues that were still under its control. While contracts for oilfields awarded since 1999 gave producers the freedom to sell oil, the government fixed buyers for crude produced from older fields, such as Mumbai High of ONGC and Ravva of Vedanta.

Oil scores first weekly gain in 5 weeks ahead of OPEC+ decision; Brent at $80

However, from June 2022 onwards, the oil companies have the freedom to sell crude oil in the domestic market.

The old rule had led to producers such as ONGC and Oil India not getting the best market price.

After that rule change, ONGC started quarterly auctions of crude oil produced from Mumbai High and Panna/Mukta fields in the western offshore.

India's crude output up 1.3% to 2.5 MMT in October, imports rise after 4 months

While the company got a slight premium over Brent in the initial auction, refiners like the Indian Oil Corporation (IOC) started seeking discounts equivalent to the one they got on Russian oil.

Following Moscow's invasion of Ukraine in February last year, Russian oil was sanctioned. This led to Russian Ural crude being traded at a discount to Brent crude (the global benchmark).

The discount on Russian Urals grade was as high as $30 a barrel in the middle of last year and is now around $6-7. Going against the sanctions by the West, India argued that domestic oil firms needed discounts as they suffered losses on selling petrol and diesel at below cost to keep inflation in check.

ONGC resisted the discounts arguing that the government has taken away all upsides of the recent surge in oil prices through a levy of windfall profit tax. As a way out, it floated the idea of a term contract - selling a fixed quantity of oil in a year at the pre-agreed benchmark. It first signed a pact to sell 4 million tonnes per annum plus an optional 0.5 million tonne of crude oil to BPCL, which has a refinery to convert the crude oil into fuels like petrol and diesel at Mumbai.

This was followed by a similar pact with HPCL, which too has a refinery in Mumbai. ONGC also signed a pact to sell smaller volumes to its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL). In the first auction last year, ONGC had offered 33 lots of 412,500 barrels each - 26 cargoes from Uran near Mumbai and seven cargoes from Mumbai offshore - for sale starting November 1, 2022, at a minimum $0.5 premium over the average monthly price of Brent.

All the cargoes were sold to state refiners except one, which was awarded to Reliance Industries Ltd, sources said adding the refiners bid to pay a premium of $1.80-1.85 per barrel for cargoes from Uran, where supplies come through a pipeline, $3.8-6.5 per barrel for offshore cargoes and about $1.55 per barrel for a parcel from Panna-Mukta field.

(With PTI inputs)