Deregulation helps ONGC command premium

NEW DELHI: Deregulation of domestic crude appears to have tipped the balance in favour of producers as green shoots of a free market emerge. In term deals signed after getting marketing freedom, state-run producer ONGC is commanding a premium over Brent for Mumbai offshore oil in spite of attempts by buyers, also from the public sector, to beat down prices by leveraging discounts on Russian supplies.
Bharat Petroleum and Hindustan Petroleum recently entered into term deals with ONGC for 4.5 million tonnes of Mumbai crude at a price benchmarked to Brent plus a premium of 1%. So, at the prevalent $80 per barrel price of Brent, ONGC will realise an additional income of $0.8, people in the know said.
ONGC opted for term deal after it faced demand for discounts when it started holding quarterly auctions to sell oil after deregulation. The first auction in November last year attracted a premium of $0.5 over the average monthly price of Brent.
This sparked fears that refiners could come together and beat down prices in auctions. IndianOil also leveraged its leading position to seek hefty discounts. Faced with the arguments, the oil ministry cleared the term deal route.
As reported first by TOI, the government had in June last year abolished the rule under which oil from blocks awarded before 1999 without auction 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.
ONGC produces 13-14 million tonnes per annum of crude oil from its fields in the Arabian Sea, off the Mumbai coast. In addition to BPCL and HPCL, a deal was also signed with its subsidiary MRPL for a small quantity.

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