Indian refiners seek term contracts reducing reliance on spot purchases
OIL & GAS

Indian refiners seek term contracts reducing reliance on spot purchases

According to sources familiar with the matter, India's public sector refiners, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), are actively seeking crude oil term contracts with favourable terms. This move is aimed at reducing the reliance on spot cargoes for their oil imports and diversifying their crude supply basket due to the unpredictable and volatile nature of the international oil market.

India, being the world's third-largest consumer of crude oil, depends on imports to fulfil more than 85 per cent of its requirements. Currently, approximately 70 per cent of the public sector refiners' oil imports are through term deals, while the remaining portion is obtained through spot purchases. Spot contracts involve immediate purchases from suppliers or traders with short delivery cycles, whereas term contracts are long-term agreements with fixed volumes and pricing mechanisms.

In April, the largest refiner in India, IOC, signed a significant term contract with Russian oil major Rosneft. The supply volume was not disclosed. BPCL is reportedly in discussions with Rosneft to finalise a term deal for approximately six million tonnes of Russian crude annually. Additionally, efforts are underway at the government-to-government level between India and Guyana to secure oil supplies from the Caribbean nation, and negotiations are ongoing with Iraq for improved payment terms, as Iraq is already a major crude supplier to India. Last year, IOC also entered into term contracts with Brazil's Petrobras and Colombia's Ecopetrol.

In recent years, Indian refiners had increased their reliance on spot purchases to take advantage of low spot prices when global supplies were abundant. However, prior to 2015, spot purchases accounted for less than 20 per cent of the public sector refiners' oil procurement. Spot purchases are typically beneficial for refiners when supplies are plentiful and prices are declining. However, in times of high price and availability volatility, term contracts provide a more secure supply and an agreed-upon pricing mechanism.

Since Russia's invasion of Ukraine in February 2022, the global oil market has experienced significant volatility. While the volatility has subsided to some extent, concerns have arisen due to recent production cuts by major oil producers in an effort to stabilise crude oil prices. This has led to expectations of a tighter market and higher spot prices in the future.

It is worth noting that India's increased imports of Russian oil over the past 15 months, making Moscow the largest supplier of crude to New Delhi, have primarily been through spot contracts. Russia has offered lucrative discounts to attract buyers, especially after many Western buyers began avoiding its oil. However, Indian refiners' interest in term contracts for Russian crude has grown significantly as the market tightens and competition for discounted Russian barrels, particularly from China, intensifies.

An official from one of the public sector refiners emphasised the importance of supply assurance in a scenario with high oil prices and a scramble for cargoes in the spot market. They stated, "When there is an abundance of oil available at low prices, spot contracts are advantageous. However, in an environment of high prices and fierce competition in the spot market, supply assurance becomes paramount."

Redefine the future of urban mobility! Join us at the Metro Rail Conference 2025 to explore groundbreaking ideas and insights. 👉 Register today!

According to sources familiar with the matter, India's public sector refiners, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), are actively seeking crude oil term contracts with favourable terms. This move is aimed at reducing the reliance on spot cargoes for their oil imports and diversifying their crude supply basket due to the unpredictable and volatile nature of the international oil market. India, being the world's third-largest consumer of crude oil, depends on imports to fulfil more than 85 per cent of its requirements. Currently, approximately 70 per cent of the public sector refiners' oil imports are through term deals, while the remaining portion is obtained through spot purchases. Spot contracts involve immediate purchases from suppliers or traders with short delivery cycles, whereas term contracts are long-term agreements with fixed volumes and pricing mechanisms. In April, the largest refiner in India, IOC, signed a significant term contract with Russian oil major Rosneft. The supply volume was not disclosed. BPCL is reportedly in discussions with Rosneft to finalise a term deal for approximately six million tonnes of Russian crude annually. Additionally, efforts are underway at the government-to-government level between India and Guyana to secure oil supplies from the Caribbean nation, and negotiations are ongoing with Iraq for improved payment terms, as Iraq is already a major crude supplier to India. Last year, IOC also entered into term contracts with Brazil's Petrobras and Colombia's Ecopetrol. In recent years, Indian refiners had increased their reliance on spot purchases to take advantage of low spot prices when global supplies were abundant. However, prior to 2015, spot purchases accounted for less than 20 per cent of the public sector refiners' oil procurement. Spot purchases are typically beneficial for refiners when supplies are plentiful and prices are declining. However, in times of high price and availability volatility, term contracts provide a more secure supply and an agreed-upon pricing mechanism. Since Russia's invasion of Ukraine in February 2022, the global oil market has experienced significant volatility. While the volatility has subsided to some extent, concerns have arisen due to recent production cuts by major oil producers in an effort to stabilise crude oil prices. This has led to expectations of a tighter market and higher spot prices in the future. It is worth noting that India's increased imports of Russian oil over the past 15 months, making Moscow the largest supplier of crude to New Delhi, have primarily been through spot contracts. Russia has offered lucrative discounts to attract buyers, especially after many Western buyers began avoiding its oil. However, Indian refiners' interest in term contracts for Russian crude has grown significantly as the market tightens and competition for discounted Russian barrels, particularly from China, intensifies. An official from one of the public sector refiners emphasised the importance of supply assurance in a scenario with high oil prices and a scramble for cargoes in the spot market. They stated, When there is an abundance of oil available at low prices, spot contracts are advantageous. However, in an environment of high prices and fierce competition in the spot market, supply assurance becomes paramount.  

Next Story
Real Estate

Colliers India Transacts 207,000 sq ft office space at Embassy TechVillage

Embassy Office Parks REIT, India’s first listed REIT and the largest office REIT in Asia by area, announced that it has signed an Agreement to Lease (‘ATL’) with global cyber security company Rubrik at Embassy TechVillage in Bengaluru.Colliers, a leading global diversified professional services company, specialising in commercial real estate services, engineering consultancy and investment management facilitated the transaction for Rubrik.Located on Bengaluru’s Outer Ring Road, Embassy TechVillage is one of Embassy REIT’s flagship office parks which offers world-class office spaces, ..

Next Story
Infrastructure Urban

Ensemble Infrastructure India Appoints Suman Saha as Director of Design

Ensemble Infrastructure India Ltd, a leading workplace design and build fit-out company, has appointed Suman Saha as its new Director of Design. With 25 years of experience in the industry, Suman is recognized for his innovative approach and excellence in design leadership.Working closely with the CEO, Suman’s appointment will enhance the company’s design communication across multiple touchpoints, ensuring smooth collaboration between clients, designers, and execution teams for superior project outcomes. Under his guidance, Ensemble will focus on creating workspaces and design labs that em..

Next Story
Products

Ribbon Vanity by Küche7: Fluid Design Meets Everyday Elegance

Küche7, pioneers in luxury stainless steel kitchens, have unveiled the Ribbon Vanity, a graceful creation that transforms bathroom spaces with its soft, flowing design and understated sophistication. Inspired by the fluid form of a ribbon, this vanity combines smooth finishes, clean lines, and gentle curves, offering a timeless aesthetic that seamlessly complements diverse interior styles.Available in a refined blush pink hue, the Ribbon Vanity effortlessly merges functionality with elegance. With thoughtfully designed storage options, it ensures that bathroom essentials are neatly organised ..

Hi There!

"Now get regular updates from CW Magazine on WhatsApp!

Join the CW WhatsApp channel for the latest news, industry events, expert insights, and project updates from the construction and infrastructure industry.

Click the link below to join"

+91 81086 03000