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Indian Oil Corporation (IndianOil) wants to buy more crude oil from Cairn India’s Barmer, Rajasthan fields, but at an acceptable price.
A senior IndianOil official said, “We are in discussions with Cairn. We certainly want to increase our quantum of processing their crude. But, because it is very heavy crude, it needs certain typical facilities – heated pipelines. Ultimately, the price determination is from the value of the crude.”
The main buyers of Cairn’s Rajasthan oil are — Reliance Industries Ltd, Essar Oil and Indian Oil Corporation. For the current fiscal, from the total output of 180,000 per day barrels from Barmer, IndianOil is sourcing about 40,000 barrels/day, Reliance Industries close to 77,000 barrels/day, and Essar Oil close to 63,000 barrels/day.
At present, Rajasthan oil is sold at a discount to Brent. In the first quarter of the current fiscal, crude oil from the fields was sold at 9.9 per cent discount. But, Cairn has been seeking a review of the price formula by the government.
The price at which Indian refiners have been buying their crude has averaged $56. 59 a barrel in July till date. The April-June quarter’s average was $61.47 a barrel. Brent for July till date averaged at $ 56.86 a barrel and for the April-June quarter, the average was $ 61.88 a barrel.
Though India allows pricing freedom to domestic crude oil producers Cairn and ONGC, the joint venture partners in Rajasthan had to get a formula approved, as the buyers were initially government refiners. When the public sector refiners were unable to take advantage of Rajasthan oil, Cairn was permitted to sell it to private domestic refiners, who made it a buyers market (using the price formula derived for PSUs).
Another IndianOil official said, “At the moment, when we are importing so much of crude, every bit of crude that is produced in India should be utilised. But, given the problems in sourcing their crude, the price has to be acceptable. From their perspective, whatever they are aspiring could be okay.”
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