Indian Oil Corporation will buy crude oil and liquefied petroleum gas carriers of its own, moving away from a shipping model built almost entirely on hired vessels. The board has approved the purchase of a few ships and tenders were issued several months ago, director of finance Anuj Jain said on the company’s September quarter earnings call. “The country needs oil sector companies to focus more on the shipping area now,” Jain said, adding that Indian Oil is also exploring building vessels at Indian yards under the Make in India programme.
The trigger is freight. Indian Oil hires three crude carriers and nine LPG vessels on time charter, and those contracts cost about $2 to $2.50 per barrel against spot rates of $8 to $10 per barrel during the current disruption. LPG freight, normally near $40 per tonne, has traded at $160 to $180 per tonne in the spot market. Jain said the charters delivered significant savings through the crisis, which is why the company now wants more of that capacity under its own control.
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Why A Refiner Is Buying Ships
Freight has become the swing variable in India’s crude bill. Commercial movement near the Strait of Hormuz has been disrupted for months by the wider West Asia conflict, and vessel hire and war risk insurance move first in that situation. A refiner that owns tonnage turns an unpredictable spot expense into a fixed asset, and stops bidding for hulls against every trading house in Asia.
The arithmetic explains the urgency. On a two million barrel very large crude carrier cargo, the spot rates Indian Oil quoted imply a freight bill of roughly $16 million to $20 million. At its own time charter rate the same voyage costs about $4 million to $5 million. The $11 million to $16 million gap on a single cargo explains why owning tonnage moved onto the board agenda.
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The Sourcing Map Has Been Redrawn
Freight is only half of the story. Indian Oil sourced 55 per cent of its crude from Russia in the first half of this financial year, with the Middle East down to 24 per cent, Africa at about 10 per cent, Brazil at 7 per cent, the United States at 2 to 5 per cent and Venezuela at 3 to 4 per cent. Spot purchases jumped to about 87 per cent of sourcing, from roughly 50 per cent a year earlier, as the refiner chased the cheapest safe barrels.
That flexibility came with a price band. The premium or discount paid over benchmark crude ranged from a $5 discount to a $12 premium in the September quarter, against zero to $18 in the preceding three months. Longer voyages from Brazil, Venezuela and the US Gulf also mean more ship days per barrel.
What The Quarter Shows
The September quarter gave Indian Oil room to make that call. Net profit was Rs 21,630 crore, against a loss of Rs 2,661 crore in the June quarter and a profit of Rs 7,610 crore a year earlier. Gross refining margin, excluding the special additional excise duty, was $18.52 per barrel, and inventory gains added Rs 6,948 crore.
The price climb was steep. The Indian basket averaged $65 to $70 per barrel in February, stayed above $100 for much of the first quarter and averaged about $120 in October. Indian Oil lifted crude inventory to about 39 days from its usual 33 to 35 days, and holds 20 days of LPG and 23 to 25 days of petrol and diesel stock.
Peers Face The Same Squeeze
Indian Oil is not alone. Bloomberg reported on 6 November that Hindustan Petroleum said booking tankers for Hormuz voyages remained complicated, and Business Standard reported the same that day. For a sector running on imported crude, access to hulls is now a competitive advantage.
Risks And What To Watch
Analysis: owning ships is a multi year hedge, not a quick fix. Second hand vessels can arrive in months, but newbuildings at Indian yards would take years, and Indian capacity for very large crude carriers is still thin. If the Hormuz risk fades, owned tonnage becomes idle capital. If it persists, the same ships are the cheapest insurance available. Indian Oil is running all three options in parallel rather than betting on one.
Watch the tender awards for the first vessels, the monthly crude and LPG freight prints, and whether Bharat Petroleum and HPCL follow with purchase plans on their next earnings calls. Watch marketing margins in the December quarter too, because inventory gains of that size are unlikely to repeat if crude holds near $120 a barrel.
