India’s top oil and gas producer ONGC has signed term contracts with refiners to sell crude oil it produces from the 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, is trading at $80 per barrel. As per the term contracts, ONGC would get $80 plus $0.8 for the oil.

ONGC produces 13-14 million tonnes 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 before 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.

After 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 such as Indian Oil Corporation (IOC) started seeking discounts equivalent to one they got on Russian oil, sources said.

Following Moscow’s invasion of Ukraine, Russian oil was 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 discount on Russian Urals grade was as high as $30 a barrel in the middle of last year and is now around $6-7. Sources said refiners such as 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. 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 tonnes per annum plus an optional 0.5 million tonnes of crude oil to BPCL, which has a refinery to convert the crude oil into fuels like petrol and diesel in Mumbai.

This was followed by a similar pact with HPCL, which too has a refinery in Mumbai.

ONGC also signed a pact to sell smaller volumes to its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL), they said. In the first auction last year, ONGC had offered 33 lots of 412,500 barrels each — 26 cargoes from Uran near Mumbai and seven cargoes from Mumbai offshore — for sale starting November 1, 2022, at a minimum $0.5 premium over the Brent price.

PTI