State-run Hindustan Petroleum Corporation Ltd (HPCL) is increasingly purchasing Middle Eastern crude oil on a delivered basis, as producers offer discounts on stranded cargoes to offset higher shipping costs amid ongoing regional conflict.
“For all practical purposes right now, almost everything we are looking at is on a landed basis except where we think we can send a ship and pick it up cheaper,” HPCL Chairman Vikas Kaushal said during an analyst call following the company’s September-quarter earnings.
Disruptions to Middle Eastern oil supplies, as the Iran war enters its eighth month, have prompted Asian refiners to increase spot purchases on a delivered basis. Attacks on vessels transiting the Strait of Hormuz have also reduced shipping availability and pushed freight rates close to record levels.
HPCL Finance Chief Srividya Venkataraman said freight rates doubled in the July–September quarter compared with the previous quarter. Shipping crude on a Suezmax tanker now costs around $9 per barrel, up from $3–$4 per barrel in the June quarter.
Kaushal said the impact on landed crude prices could be less severe than anticipated, as producers holding stranded cargoes are also facing lower returns than publicly reported. Delivered cargoes previously accounted for around half of HPCL’s crude imports, but the company is increasingly adopting this approach to limit exposure of its own vessels to attacks and other risks associated with the regional conflict.
HPCL directly operates three refineries with a combined capacity of 670,000 barrels per day.
Meanwhile, the company expects to begin producing high-sulphur fuel oil at its 180,000-barrel-per-day Rajasthan refinery in December. The refinery is currently operating at around 60% capacity and is expected to reach full capacity by the end of December or early January, Kaushal said.