February 16, 2016: The oil ministry will shortly move a Cabinet note on crude import policy that will allow the country to do away with tendering and begin spot purchases. The move will also provide a common crude platform for all state-owned oil refiners, Union oil minister Dharmendra Pradhan said today. Under the tendering route, the country normally pays higher prices and incurs delays while a system of spot purchases ensures better delivery at lower prices. “Soon, we will be moving a Cabinet note to set up a common trading platform for all the three PSU oil refiners,” Pradhan told reporters on the sidelines of the ongoing week-long Make in India Week here. “Once set up, it will be up to the companies to decide how to use the platform – individually or collectively,” he added.
The minister noted that despite being the third-largest consumer of oil, India is the only country that still procures crude through the tendering process. Pradhan has been very vocal on pitching for an Asian discount against the Asian premium forced through by Opec. The Asian premium refers to higher prices to the tune of USD 2-3 a barrel which the Brent basket, which sets the Asian prices, charges over the Nymex (American) basket.
However, Pradhan clarified that he is not advocating a trading desk per se, but is all for better inventory management that helps reduce unnecessary losses from procuring crude months in advance. Currently, oil companies individually have a centralised procurement system, under which they have to take prior permission from the ministry on a periodic basis to go ahead with crude purchase.
Normally, companies take almost three months to start processing crude after concluding the tendering process. For instance, if IOC closes a tender for May loading, then the tender would be concluded in March and it can begin processing only early June. Given the way crude is moving down, there is no way companies that follow tendering route can avoid inventory losses at all.
Source: Oil & Gas India, February 16th 2106