- Indian oil refiners face higher crude transport costs, rising to $12-$20 per barrel from $8-$10 recently
- Shipping expenses increased by $4-$10 per barrel due to route disruptions and congestion near Strait of Hormuz
- Physical crude prices trade nearly $20 a barrel above Brent futures, pressuring refiners' procurement budgets
Indian oil refiners are facing higher procurement costs as crude transportation expenses have climbed to $12-$20 per barrel from $8-$10 in recent months, sources told NDTV Profit.
The increase has added $4-$10 per barrel to shipping expenses, depending on the route, putting further pressure on refiners' landed crude costs and refining margins, the persons added.
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Freight expenses were higher in the September quarter than in the June quarter and remained elevated through October and November.
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Congestion around the Strait of Hormuz and shipment diversions have disrupted crude transportation, increasing the cost of bringing oil into India.
Refiners are also dealing with expensive physical crude purchases. Physical crude cargoes are trading at nearly $20 per barrel above Brent futures, creating additional pressure on procurement budgets.
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The combination of higher crude prices and transportation expenses has made refining operations more expensive.
The changing freight economics are also influencing India's crude sourcing decisions. US and Russian oil cargoes have become less attractive as higher transportation costs reduce their competitiveness.
Indian refiners have consequently leaned more towards Middle Eastern crude instead of Russian shipments during October and November.
Some relief in shipping expenses is expected from December. However, freight rates remain elevated in the near term, leaving refiners exposed to higher input costs.
Indian Oil Corporation (IOC) is exploring ship ownership as a way to reduce its dependence on external shipping arrangements and manage transportation risks.
The company has floated tenders to purchase vessels amid rising freight expenses and uncertainty surrounding international shipping routes.
The move could give IOC greater control over crude transportation and reduce its exposure to volatile freight markets.
NDTV Profit has sought responses from IOC, Bharat Petroleum Corporation and Hindustan Petroleum Corporation regarding the rising shipping costs. Their responses were awaited at the time of reporting.
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