Indian Oil to Trim Term Deals With Gulf Producers For Next Year

Indian Oil Corp. plans to reduce the amount of crude purchased under term contracts with Middle Eastern producers next year, according to a person familiar with the matter, as attacks in the Persian Gulf continue to threaten supply routes.

India’s largest refiner, which also takes crude for its Chennai Petroleum Corp. unit, imports more than 1.5 million barrels a day. Close to half of that amount is covered by term contracts with Persian Gulf producers at the official selling price, the person said. A significant reduction to the scale of those agreements would mark a departure from current practices.

The war in the Middle East and the resulting disruption in the Strait of Hormuz have upended global oil supply, effectively making this year’s term deals moot. Instead, producers have been offering more cargoes from outside the Gulf on a spot basis. That practice, rare before February, has pushed buyers toward the more flexible options and reduced the incentive to tap long-term deals.

Indian Oil typically starts firming up its annual procurement plans around September but has yet to finalize its strategy this year, given continued market instability, the person said.

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Saudi Arabia, Iraq and the United Arab Emirates have historically been among the key providers of term crude to Indian refiners. Iraq’s term contract with Indian Oil runs on a calendar-year basis, but agreements with most other Middle Eastern suppliers follow India’s fiscal year, which begins on April 1.

Cutting back the scale of term deals does not necessarily mean Indian Oil will buy fewer Middle Eastern barrels. Instead, it would shift to shift a larger share of purchases to the more flexible spot market, preserving access to Gulf barrels when prices, freight and availability are attractive — but allowing itself space to pull back when they are not.

The war is also reshaping Indian Oil’s plans beyond crude procurement. The company has delayed plans to buy at least two very large gas carriers after vessel prices more than doubled to about $150 million from roughly $70 million before the conflict, the person said.

Indian Oil has also pushed back plans for a trading joint venture with Vitol Group, the person said.