Bharat Petroleum and Hindustan Petroleum recently entered into term deals with ONGC for 4.5 million tonnes of Mumbai crude at a price benchmarked to Brent plus a premium of 1%. It also signed pact with refining arm MRPL for a small volume. At the prevalent $80 per barrel price of Brent, ONGC will realise an additional income of $0.8 under these deals, people in the know said.
ONGC opted for term deals after it faced demand for discounts when it started selling crude through quarterly auctions after deregulation. The first auction in November last year attracted a premium of $0.5 over the average monthly price of Brent. Refiners such as IndianOil also leveraged its leading position to seek hefty discounts.
The auctions were also fraught with the possibility of refiners collaborating to beat down prices, making it unviable for ONGC as the windfall tax imposed by the government shaved much of the benefit of elevated oil price spike in the wake of Russia’s invasion of Ukraine.
As reported first by TOI, the government had in June last year abolished the rule under which oil from blocks awarded before 1999 without auction 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.
ONGC produces 13-14 million tonnes per annum of crude oil from its fields in the Arabian Sea, off the Mumbai coast.
