ONGC Capitalizes on Deregulation, Secures Premium Deals in Crude Oil Sales to BPCL and HPCL

28 Nov 2023 , 02:25 PM

Deregulation of domestically-produced crude oil sales benefits ONGC, allowing premium charges over Brent in deals with BPCL and HPCL.

ONGC signs agreements to sell approximately 4.5 million tonnes of crude oil each to BPCL and HPCL, produced from Mumbai offshore fields, at a premium to the international benchmark Brent.

The oil is priced at the prevailing Brent crude oil price plus 1%, resulting in ONGC receiving $80 plus $0.8 after the oil contract, with Brent trading at $80.

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

In June of the previous year, the Indian government deregulated the sale of locally produced crude oil, allowing companies like ONGC to sell to any Indian refinery. Previous regulations restricted producers to fixed buyers for crude from older fields, but from June 2022, oil companies gained the freedom to sell in the domestic market.

After the rule change, ONGC initiated quarterly auctions of crude oil. Refiners, like IOC, sought discounts similar to those on Russian oil.

Russian oil sanctions led to discounted trading of Russian Ural crude compared to Brent. India argued against sanctions, stating domestic oil firms needed discounts due to losses from selling petrol and diesel below cost to control inflation.

ONGC resisted discounts, citing the government’s windfall profit tax. The company proposed term contracts, signing pacts to sell fixed quantities of oil to BPCL, HPCL, and its subsidiary MRPL. ONGC’s initial auction involved offering 33 lots of crude oil for sale, starting November 1, 2022, with a minimum $0.5 premium over the average monthly price of Brent.

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