ONGC, India’s leading oil and gas producer, has entered into term contracts with refiners to sell crude oil extracted from Mumbai offshore fields at a premium to the international benchmark Brent, according to sources. The Oil and Natural Gas Corporation (ONGC) has finalized agreements to supply approximately 4.5 million tonnes of crude oil each to Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL).
Under these agreements, the oil is priced at the prevailing Brent crude oil rate plus 1%. With Brent currently trading at USD 80 per barrel, ONGC is set to receive USD 80 plus USD 0.8 for the oil it sells to HPCL and BPCL.
ONGC’s annual crude oil production from its Arabian Sea fields, off the Mumbai coast, amounts to 13-14 million tonnes. In June of the previous year, the government eliminated a regulation stipulating that oil from blocks awarded before 1999 must be sold to government-nominated customers, primarily state refiners. This change allowed ONGC to conduct quarterly auctions for crude oil produced from Mumbai High and Panna/Mukta fields in the western offshore.
Initially, ONGC received a slight premium over Brent in the auctions. However, refiners such as Indian Oil Corporation (IOC) began seeking discounts comparable to those they received on Russian oil following Moscow’s invasion of Ukraine in February the previous year. Russian Urals crude, being traded at a discount to Brent, became more attractive after being sanctioned and shunned by European buyers and some in Asia.
Refiners argued that they needed discounts due to losses incurred in selling petrol and diesel below cost to control inflation. ONGC resisted the discounts, citing the government’s imposition of a windfall profit tax that nullified the benefits of rising oil prices. As an alternative, ONGC proposed term contracts, selling a fixed quantity of oil annually at a pre-agreed benchmark.
The first contract involved selling 4 million tonnes per annum plus an optional 0.5 million tonnes to BPCL. Subsequently, ONGC signed a similar agreement with HPCL and another contract to sell smaller volumes to its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL). In the initial auction last year, ONGC offered 33 lots of 412,500 barrels each, with refiners bidding to pay premiums ranging from USD 0.5 to USD 6.5 per barrel, depending on the crude’s origin and method of supply.
