India sells oil out of reserves to lease storage chambers

New Delhi: The Government of India commenced selling oil from its Strategic Petroleum Reserve (SPR) to state-run refineries, implementing its new policy to commercialise its federal storage by leasing out space, reports Reuters. Last month, Reuters had reported the government's new policy to allow the Indian Strategic Petroleum Reserves Ltd (ISPRL) to lease 30 per cent of its capacity to Indian and foreign companies. ISPRL manages the federal oil inventories of 37 million barrels of capacity.

Under the change in policy, the government will also allow ISPRL to trade oil equivalent to 20 per cent of the overall SPR capacity in Indian markets.

In 2020, the ISPRL had filled SPRs with cheap oil. Now, it needed to sell some to lease space. According to sources, the ISPRL is releasing 8 million barrels from the SPRs to create space and lease to state-run Mangalore Refinery and Petrochemicals Ltd (MRPL) and Hindustan Petroleum Corp Ltd (HPCL).

ISPRL has started selling 5.5 million barrels of Upper Zakum oil from UAE, stored at Mangalore cavern, to MRPL. It aims to empty the chamber by February 2022, as MPRL wants it for a different grade of crude oil. MPRL will lease 3,00,000 tonnes of space in Mangalore, and HPCL would take a similar-sized space of about 7.5 million barrels in Vizag SPR. The latter contains Iraqi Basra oil. HPCL needs the Iraqi oil, and the whole of it won't be sold.

ISPRL would lease out a space for 2.5 million tonnes in Padur storage in the next stage. This storage is filled currently with a mix of Arab oil.

Currently, Abu Dhabi National Oil Co (ADNOC) has leased one of the two equal size chambers at the 11-million-barrel Mangalore SPR.

After the oil prices crashed last year due to the pandemic induced demand collapse, it surged strongly later. While Saudi Aramco hiked prices in September last year, the highest since February 2020, and crude oil supplies fell following the production cuts by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), refiners in India face higher costs for term supplies from the Middle East.

However, the two state refiners would buy ISPRL's oil at a discount to the Official Selling Price (OSP) set by the producer countries.

The world's third-largest oil importer and consumer, India imports over 80% of its oil needs. Now it is adopting the model of countries such as Japan and South Korea in its commercialisation of SPRs, aiming at private participation in two planned new facilities.

The chances are that India might reduce oil imports from the UAE even though the quantity it releases from SPR is relatively small.

ISPRL, HPCL or MPRL didn't respond immediately to Reuters.