New Delhi: India’s leading oil and gas producer, Oil and Natural Gas Corporation (ONGC), has recently finalized contracts with major refiners, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), for the sale of approximately 4.5 million tonnes of crude oil each. 

Under these term contracts, the crude oil extracted from ONGC's Mumbai offshore fields will be sold at a premium to the international benchmark Brent crude oil price. The agreed pricing structure entails the prevailing Brent crude oil price plus a 1% premium. With Brent currently trading at $80 per barrel, ONGC stands to receive $80 plus an additional $0.8 for each barrel of oil sold. 

ONGC annually produces 13-14 million tonnes of crude oil from its fields in the Arabian Sea, off the Mumbai coast. Last year, the Indian government eliminated a pre-existing rule that mandated oil from blocks awarded before 1999 to be sold to government-nominated customers, primarily state refiners. This rule change allowed ONGC to conduct quarterly auctions of crude oil from the Mumbai High and Panna/Mukta fields in the western offshore. 

While ONGC initially secured a slight premium over Brent in the initial auction, refiners like Indian Oil Corporation (IOC) began seeking discounts equivalent to those on Russian oil. 

This shift occurred following Russia's invasion of Ukraine, which led to Russian Urals crude being traded at a discount to Brent crude. Despite pressure from refiners for discounts, ONGC resisted, 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, resulting in agreements to sell fixed quantities of oil to BPCL, HPCL, and its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL). This strategic move allows ONGC to navigate the complexities of oil pricing while maintaining stability in its agreements with key refiners. 

Source: PTI