Indian state-owned refineries are increasingly turning to purchasing crude oil on a delivered basis (CIF). This shift in approach has arisen due to rising transportation costs and severe price fluctuations following geopolitical tensions. A senior official from an Indian refinery announced on October 26: "These days we are purchasing crude oil on a delivered basis, not on an FOB basis as we used to before."
Reasons for the Change in Refineries' Approach
Under CIF agreements, sellers assume the cost and risk of transporting crude oil to the buyer's destination. This allows Indian refineries to predictably manage the final cost and avoid sudden increases in transportation prices caused by disruptions and attacks in the Gulf region. According to a refinery official, "Transportation costs for crude oil shipments have significantly increased in recent weeks. There is concern that seemingly attractive purchases may not be economical by the time they reach Indian refineries."
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Future Plans of Refineries
Vishakha Kaushal, Chairman and Managing Director of Hindustan Petroleum Corporation Limited (HPCL), stated during a call with investors on October 23 that the refinery is looking to purchase crude oil on a delivered basis unless it can send a ship to pick up the shipments at a lower cost. Kaushal added: "The market situation is currently unstable, and we are comparing the costs of delivered crude oil from global suppliers and choosing the lowest-cost options."
Given the rising costs of oil and transportation, refineries are cautious about maintaining the ratios of fixed contract purchases and spot market purchases in a highly uncertain environment. HPCL no longer relies on a 50-50 split between contract and spot purchases, as geopolitical conditions have significantly altered the economics of crude oil buying.
Overall, Indian refineries are expected to play a larger role in Venezuela's energy sector in the near future, especially with the increase in oil production in that country and the necessity for more heavy crude oil imports for processing.
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