ONGC charges premium over Brent in oil deals

New Delhi: India’s top oil and gas producer ONGC has signed term contracts with refiners to sell crude oil it produces from Mumbai offshore fields at a premium to international benchmark Brent, sources said.

Oil and Natural Gas Corporation (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). The oil has been priced at the prevailing Brent crude oil price plus 1 per cent, company sources said. Brent, the world’s best known benchmark for the raw material that is converted into fuels like petrol and diesel in refineries, is trading at $80 per barrel. As per the pricing in the term contracts, ONGC would get $80 plus $0.8 for the oil it will sell to HPCL and BPCL.

ONGC produces 13-14 million tonne per annum of crude oil from its fields in the Arabian Sea, off the Mumbai coast. In June last year, the government abolished a rule that said oil from blocks awarded prior to 1999 must be sold to government-nominated customers, mostly state refiners. The old rule had led to producers such as ONGC and Oil India not getting the best market price. Subsequent to that rule change, ONGC started quarterly auctions of crude oil produced from Mumbai High and Panna/Mukta fields in the western offshore.

While the company got a slight premium over Brent - the crude oil its Mumbai offshore is closest in quality to - in the initial auction, refiners like Indian Oil Corporation (IOC) started seeking discounts equivalent to one they got on Russian oil, sources said. Following Moscow’s invasion of Ukraine in February last year, Russian oil was sanctioned and shunned by European buyers and some in Asia, such as Japan. This led to Russian Urals crude being traded at a discount to Brent crude (the global benchmark). The discount on Russian Urals grade was as high as USD 30 a barrel in the middle of last year and now around $6-7.

Sources said refiners like IOC argued that they 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. And 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 tonne 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.