Indian Oil Corporation plans to purchase crude and LPG vessels

India's largest oil refinery, Indian Oil Corporation (IOC), is planning to purchase crude oil and Liquefied Petroleum Gas (LPG) vessels, keeping in view the risks arising in the shipping sector due to the West Asia crisis. Due to disruptions in shipping near the Strait of Hormuz and a massive increase in cargo transportation costs, the company seeks to gain more control over its energy supply chain.

Anuj Jain, the company's Finance Director, stated that the purchase of some vessels has been approved by the company's board and tenders for the same were issued a few months ago. Jain further added that the country's oil sector companies now need to focus more on the shipping sector. Additionally, the company is also exploring the possibility of manufacturing vessels within India under the Government of India's 'Make in India' initiative.

Traditionally, Indian Oil Corporation has relied on a mix of time-charter and voyage-charter vessels, but its strategy is now changing. The company is currently considering three approaches: planning existing charter arrangements, acquiring ownership of its own vessels, and supporting local shipbuilding. Due to geopolitical tensions in West Asia, commercial movement near the Strait of Hormuz is being disrupted, which has increased freight rates and war-risk insurance costs.

Currently, Indian Oil Corporation has three crude oil vessels and nine LPG vessels on time charter. Jain stated that these arrangements have resulted in significant cost savings during the current crisis. The cost of the company's time-charter crude vessels is approximately $2-2.50 per barrel, while in the spot market, this rate has reached up to $8-10 per barrel. Similarly, LPG freight rates, which are usually $40 per tonne, have increased to $160-180 per tonne in the spot market.

To diversify crude purchases and reduce the risk of supply disruptions, the company is adopting this strategy. Jain stated that during the first six months of the current financial year, the company procured 55 per cent of its crude requirements from Russia, while the share of Middle Eastern countries was 24 per cent. Additionally, Africa's share was approximately 10 per cent, Brazil's 7 per cent, the US 2-5 per cent, and Venezuela's 3-4 per cent. The company continues to purchase crude from Russia at the best prices and is also processing crude from Venezuela.

The company has also significantly increased spot purchases. In the first six months of FY 27, the share of spot imports in crude sourcing was approximately 87 per cent, compared to approximately 50 per cent in the previous financial year. Jain stated that despite volatility in the global crude market, the company has been successful in obtaining discounts against benchmark prices. In the September quarter, the range of premium or discount paid on benchmark crude was from a discount of $5 per barrel to a premium of $12 per barrel, whereas in the previous quarter, it was in the range of zero to $18 per barrel premium.

Oil prices saw a major surge in late February as tensions between the US and Iran escalated. Jain stated that in February, the Indian basket crude averaged $65-70 per barrel, which remained mostly above $100 during the first quarter, and in the month of October, it averaged $120 per barrel.

Despite disruptions in the supply chain, Indian Oil Corporation has maintained its refinery operation levels and has increased crude inventory to approximately 39 days, which is usually 33-35 days. The company also has 20 days of LPG stock and 23-25 days of petrol and diesel stock.

The company reported a net profit of ₹21,630 crore in the September quarter, compared to a loss of ₹2,661 crore in the previous quarter and a profit of ₹7,610 crore in the same period of the previous year. The company stated that this increase in profit was due to inventory gains and improved performance in various businesses.

Indian Oil Corporation was India's largest oil refinery.