Spot Crude Buy­ing Time Cut to 2 Hrs

The Economic Times - - Economy: Macro, Micro & More - San­jeev.Choud­hary @times­


New Delhi: In­dian Oil Cor­po­ra­tion (IOC) has brought down the buy­ing time for some of its spot car­goes to two hours, sharply shrink­ing from 30 hours just one and a half years ago, a move that would help the coun­try’s largest re­finer bring down crude cost and boost mar­gin.

IOC picks 30% of its crude from the spot mar­ket, a share that went up from 20% in the past two years as state re­fin­ers tried to take ad­van­tage of the fall­ing crude prices. Last year, the state re­fin­ers were also un­shack­led by the gov­ern­ment to de­cide on their spot pur­chas­ing mech­a­nism, which has now helped IOC dras­ti­cally re­duce pur­chase time.

For the past few months, the com­pany has un­der­taken a pi­lot in which it calls for pre-spec­i­fied crude from pre-spec­i­fied sell­ers within a price band, a com­pany ex­ec­u­tive said. Each trans­ac­tion has taken about two hours and the com­pany has been able to pur­chase a few car­goes so far, the ex­ec­u­tive said.

This is less than one-fourth of the usual nine hours taken cur­rently for the ten­der­ing process in the spot mar­ket. Even nine hours is a huge im­prove­ment over nearly 30 hours that the com­pany took ear­lier.

“If you ac­cept an of­fer in a very short du­ra­tion, you get the price ad­van­tage. As you de­lay, the time risk gets priced in,” said the ex­ec­u­tive, adding that the ef­fort is to­wards re­duc­ing pur­chase time so that the com­pany is able to source cheaper crude and is on an equal fo- ot­ing with pri­vate re­fin­ers.

IOC plans to im­port 50.3 mil­lion tonnes of crude oil in 2017-18, about 0.9 mil­lion tonne higher than in the cur­rent year. The in­crease in sup­ply will likely be ab­sorbed by the 15 mil­lion tonnes Paradip re­fin­ery ex­pected to reach 100% ca­pac­ity util­i­sa­tion next fis­cal year from about 80-85% now.

With 15.6 mil­lion tonne, Iraq is the big­gest sup­plier to IOC. Saudi Arab comes sec­ond with 5.7 mil­lion tonnes.

The third spot is shared be­tween Kuwait and Iran with 5 mil­lion tonnes each. The UAE sup­plies about 2.5 mil­lion tonnes.

West Asia re­mains a big source of sup­plies to IOC, which con­trols about a third of the In­dian re­fin­ing ca­pac­ity, and has been di­ver­si­fy­ing its sup­ply bases to mul­ti­ple re­gions.

A global col­lapse in oil prices in the past two years has boosted the bar­gain­ing power of big crude im­porters like In­dia with re­spect to the oil pro­duc­ers.

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