Deregulation of the sale of petroleum-produced crude oil appeared to be in favor of ONGC as the company will pay a premium over Brent in oil deals with BPCL and HPCL. The ONGC has signed agreements to sell approximately 4.5 million tonnes of oil each to Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) in which it will sell oil it produces from Mumbai offshore fields at a premium to an international benchmark. Brent.
According to a news report, the oil was priced at the prevailing Brent crude 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 a year of crude oil from its fields in the Arabian Sea, off the Mumbai coast.
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In June last year, India’s government allowed companies like ONGC and Vedanta to sell locally produced oil to any Indian refinery to turn it into fuel, such as gasoline and diesel, as it deregulated one of the last few avenues that were still under the less of the country. its control. While contracts for oil fields awarded since 1999 have given producers the freedom to sell oil, the government has fixed buyers for oil produced from older fields, such as ONGC’s Mumbai High and Vedanto’s Ravva.
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However, from June 2022 onwards, the oil companies have the freedom to sell oil in the domestic market.
The old rule led to producers such as ONGC and Oil India not getting the best market price.
After that rule change, ONGC started quarterly auctions of oil produced from Mumbai High and Panna/Mukta fields in the western offshore.
India’s crude output rose 1.3% to 2.5 MMT in October, imports rise after 4 months.
While the company received a slight premium over Brent in the initial auction, refiners such as the Indian Oil Corporation (IOC) began looking for discounts equivalent to the one they received on Russian oil.
After Moscow’s invasion of Ukraine in February of last year, Russian oil was sanctioned. This led to Russian Ural crude trading 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. Against the West’s sanctions, India argued that domestic oil companies needed discounts because they suffered losses from selling gasoline and diesel at below cost to keep inflation in check.
ONGC resisted the rebates arguing that the government has taken away all the benefits of the recent rise in oil prices by levying excess profits tax. As a way out, it floated the idea of a rolling contract – selling a fixed amount of oil in a year according to the pre-agreed benchmark. It first signed a pact to sell 4 million tonnes per year plus an optional 0.5 million tonnes of oil to BPCL, which has a refinery to convert the oil into fuels like petrol and diesel in Mumbai.
A similar pact followed with HPCL, which also has a refinery in Mumbai. ONGC has also signed a pact to sell smaller volumes to its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL). In the first auction last year, ONGC offered 33 lots of 412,500 barrels each — 26 cargoes of Uran near Mumbai and seven cargoes of Mumbai offshore — for sale from November 1, 2022, at a minimum $0.5 premium over the monthly average. price of Brent. .
All the cargoes were sold to state-owned refiners except one, which was awarded to Reliance Industries Ltd, sources said, adding that the refiners had offered to pay a premium of $1.80-1.85 per barrel for cargoes from Uranium, where supplies come through a pipeline. 3.8-6.5 USD. per barrel for offshore cargoes and approximately USD 1.55 per barrel for package from Panna-Mukta field.
(With PTI inputs)
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Updated: 27 Nov 2023, 09:42 IST