BPCL Turns to Spot Crude as Iran Conflict Disrupts Term Supplies

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(Bloomberg) — India’s Bharat Petroleum Corp. Ltd. has largely shifted to making spot crude purchases as the Iran war upends annual arrangements for Middle Eastern barrels, highlighting challenges for refiners to secure supplies.

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The state-owned refiner had planned to source about 55% of its crude requirements through annual term contracts during the fiscal year that began in April, similar to the previous year, according to Finance Director Vetsa Ramakrishna Gupta. But apart from Saudi Aramco, most Middle Eastern suppliers have been unable to deliver contracted volumes, he said.

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The disruptions stem from the effective closure of the Strait of Hormuz, a critical waterway that carries about a fifth of global oil flows. The supply shock has rattled import-dependent nations including India, the world’s third-largest crude buyer. It has also undermined the reliability traditionally associated with long-term Middle Eastern supply agreements, which typically account for roughly half of India’s crude imports.

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“There is no long-term strategy,” Gupta told reporters on Tuesday after the Mumbai-based company reported earnings. “Every day we are just going to the market — whatever crude is available, whatever source is available.”

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BPCL is now relying on Russian crude to meet about 45% of its requirements, Gupta said.

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It has secured crude supplies for June and nearly half of its July requirements, while purchases for August are currently underway, Chairman Sanjay Khanna said. The main thing is how to ensure adequate crude is available for BPCL’s refineries to operate at peak capacity, Khanna said.

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India’s state-run refiners are facing pressure to maximize refinery runs to avoid domestic fuel shortages. BPCL is currently selling diesel at a loss of 25-30 rupees a liter and gasoline at a loss of 10-14 rupees a liter, despite two government-approved fuel price increases within a week, Gupta said.

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The energy shock is adding pressure to India’s economy as higher crude prices widen import costs and weaken the rupee. Prime Minister Narendra Modi has urged citizens to cut fuel use to help preserve foreign-exchange reserves.

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BPCL on Tuesday reported fiscal fourth-quarter net income of 31.9 billion rupees ($331 million), missing analyst estimates. Oil Minister Hardeep Singh Puri last week said that profits earned by state refiners in the fiscal year ended March 31 had been erased in the April-June quarter because fuels were being sold below cost.

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