Strait of Hormuz disruptions push IOC to acquire crude oil, LPG carriers
With shipping costs rising sharply and movement around the Strait of Hormuz facing disruptions, Indian Oil Corporation (IOC) is looking to take greater control of how its crude oil and liquefied petroleum gas (LPG) reach its refineries. The state-owned oil major plans to purchase its own carriers and is also exploring the possibility of getting ships built in India. IOC's board has approved the purchase of a few vessels, and tenders for the proposed acquisitions were issued several months ago, director of finance Anuj Jain said during the company's second-quarter earnings call. "The country needs oil sector companies to focus more on the shipping area now," Jain said, adding that the company was examining shipbuilding opportunities in India under the government's Make in India initiative. The proposed purchases could change the way IOC manages its shipping requirements. The company has traditionally depended on time-chartered and voyage-chartered vessels but is now looking at a combination of owning ships, improving existing charter arrangements and encouraging domestic shipbuilding.
Shipping costs jump as Hormuz disruptions tighten the squeeze
The rising cost of transporting crude oil and LPG has made shipping arrangements an important part of IOC's strategy. Geopolitical tensions in the Middle East have disrupted commercial movement near the Strait of Hormuz, leading to higher freight rates and war-risk insurance costs. IOC currently has three crude oil carriers and nine LPG vessels under time-charter arrangements. These have helped it contain transportation expenses during the current crisis, Jain said. The difference between chartered and spot-market rates has been particularly sharp. IOC pays around $2-2.50 per barrel for its time-chartered crude carriers, against spot-market rates of up to $8-10 per barrel. The pressure is even more pronounced in LPG transportation. Freight rates that would generally be around $40 per tonne have climbed to $160-180 per tonne in the spot market, Jain said.
Russia accounts for 55% of IOC's crude sourcing
Alongside its plans to strengthen shipping capacity, IOC has changed the geographical mix of its crude purchases to diversify supplies and limit exposure to disruptions. Russia supplied 55 per cent of the company's crude requirements in the first half of the current financial year. Middle Eastern countries accounted for another 24 per cent, while Africa contributed around 10 per cent. Brazil supplied 7 per cent of IOC's crude, the United States accounted for 2-5 per cent and Venezuela contributed 3-4 per cent, Jain said. The company has also moved towards greater reliance on spot purchases. These accounted for around 87 per cent of its crude sourcing in the first half of FY27, against approximately 50 per cent in the previous financial year. IOC has managed to negotiate discounts against benchmark prices despite fluctuations in the global market. The premium or discount paid over benchmark crude during the September quarter ranged from a discount of $5 per barrel to a premium of $12 per barrel. In the preceding quarter, the range was between zero and a premium of $18 per barrel. Jain said IOC continued to purchase Russian crude at what it described as optimal prices and was also processing Venezuelan crude.
Crude prices climb to around $120 per barrel in October
The company's procurement strategy comes amid a sharp rise in oil prices following the escalation of US-Iran hostilities towards the end of February. Indian basket crude, which averaged around $65-70 per barrel in February, stayed above $100 for much of the first quarter. It averaged approximately $120 per barrel in October, Jain said. Despite the supply-chain challenges, IOC has kept its refinery operations at optimal levels while building up inventories to provide a buffer against disruptions. Its crude oil inventory has increased to around 39 days from the usual 33-35 days. The company was also holding 20 days of LPG inventory and 23-25 days of petrol and diesel stocks.
Inventory gains help IOC report Rs 21,630 crore profit
IOC's net profit rose to Rs 21,630 crore in the September quarter, compared with a loss of Rs 2,661 crore in the preceding quarter. The company had reported a profit of Rs 7,610 crore in the corresponding period last year. Inventory gains and improved performance across several businesses contributed to the quarterly profitability, the company said. IOC recorded a gross refining margin of $18.52 per barrel, excluding the impact of the special additional excise duty. Its inventory gain stood at Rs 6,948 crore during the quarter. However, the company continues to face uncertainty from geopolitical developments. Jain said these remained a key concern, particularly because of their impact on crude procurement, freight costs and marketing margins. IOC's plans to acquire vessels and explore shipbuilding in India come as it looks to strengthen its control over transportation alongside diversifying its crude purchases.
