India has evolved its strategy to import crude oil with a focus on increasing spot cargoes. This also reflects the country’s growing oil trade with Russia. India imports about 85 per cent of its crude oil requirement, with majority being annual term contracts.

The world’s third largest energy consumer’s crude oil imports from the spot market rose to 49.6 million tonnes (mt) in FY23, the highest on record, in terms of volumes. Term cargoes stood at 91.6 mt or 64.87 per cent of the total imports last fiscal.

On a percentage basis, it stood at 35.13 per cent, which is the second highest on record, after India imported 35.97 per cent — roughly 39.6 mt — crude oil via spot market in FY21, the Standing Committee on Petroleum and Natural Gas said in a report placed in Parliament.

Spot cargoes

India usually purchases crude oil from the Middle East through term contracts, and with Russia through the spot market. Term contracts are finalised on a yearly basis and this is done with national oil companies (NoCs), while the balance is covered by spot tenders.

For the oil and gas PSUs, the approving authority for term contracts is the Board of Directors and for spot tenders, it is the Empowered Standing Committee (ESC).

Deposing before the Committee, a representative of the Ministry of Petroleum and Natural gas (MopNG) said, “Spot purchase helps refineries to adjust their crude oil purchases to meet varying seasonal/market demand and to meet operational exigencies. Further, spot market offers opportunities to buy competitively priced crudes and explore new crude oil grades from diverse geographies.”

The representative further explained that spot purchase gives oil companies the option of exploring new grades; there are many grades in which people do not give term contracts. “We get all those grades normally through the spot market and it is done through competitive tenders or trading desks — the methodology for finalising spot purchases. Then, the frequency of these spot purchases depends on the requirement of the company,” the representative added.

For instance, Indian Oil Corporation (IOC) typically does spot purchase once a week and at times even twice a week. On the other hand, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) do it once in 10 days and typical purchases are done two to three months in advance.

A representative with an oil PSU said that spot purchases have grown more than anticipated. The strategy is that most of the volumes are through term contracts, but some volume is left for spot in order to decrease the volumes based on demand.

“Crude oil imports by the PSUs and subsidiaries in terms of spot and term, if you see from FY18 to FY22, we have reduced our term values in terms of percentages and increased the spot percentage. This is to capture the spot market and also to look out for new grades in the spot markets. That is the main reason why term volumes have been reduced and spot purchases have been increased,” he added.

Increasing crude sources

Oil PSUs have started importing crude oil from the US, Canada, Russia, Australia, Brazil, Guyana, Norway, Egypt, Gabon, Ghana, Congo, Equatorial Guinea, Libya, Nigeria, etc, and have diversified its crude supply.

On increasing imports from Russia, the MoPNG representative told the panel: “When they (OMCs) are getting Russian crude and they are able to follow rules, for the benefit of the companies and for the country, as the (Oil) Minister and the External Affairs Minister have been saying, they are importing without doing anything which is not within the rules, and complying with the rules.”

“If India does not absorb — I would call it absorption — 1.95 million barrels per day. These prices would have reached $120-$130. It would have created a havoc,” he added.

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