HPCL Shifts to Delivered Basis Crude Purchases Amid High Freight Rates

State-run Hindustan Petroleum Corporation (HPCL) is increasingly procuring Middle Eastern crude oil on a delivered basis. According to company executives, producers holding stranded cargoes are offering discounts to offset rising maritime shipping expenses amid ongoing regional supply disruptions.

HPCL directly operates three refineries with a combined processing capacity of 670,000 barrels per day. Speaking on an analyst call following the September-quarter earnings, company officials outlined how logistics and freight dynamics are shifting procurement strategies.

'For all practical purposes right now almost everything we are looking at is on landed basis except where we think we can send a ship and pick it up cheaper,' said Vikas Kaushal during the interaction.

The shift comes as Asian refiners increasingly buy spot Middle Eastern oil on a delivered basis due to supply disruptions and security concerns. Ongoing attacks on vessels transiting the Strait of Hormuz have tightened shipping availability and driven freight rates close to record highs as the regional conflict enters its eighth month.

HPCL finance chief Srividya Venkataraman noted that freight rates doubled in the July-to-September quarter compared to the previous three-month period. Specifically, the cost of shipping crude on a Suezmax tanker climbed to approximately $9 per barrel, up sharply from $3 to $4 in the June quarter.

Despite the sharp rise in transport expenses, executives emphasized that landed price impacts are partially mitigated by producer pricing strategies. Kaushal noted that the returns for producers dealing with stranded cargoes are significantly lower than publicly reported figures, prompting them to absorb or offset a portion of the shipping cost burden through discounts.

Previously, delivered cargoes accounted for approximately half of HPCL's total crude imports. The company is now leaning further into this procurement model to avoid exposing its own vessels to attacks and other operational risks tied to the regional conflict.

In operational updates, Kaushal stated that HPCL expects to begin producing high-sulphur fuel oil at its 180,000-barrel-per-day Rajasthan refinery in December. The facility is currently operating at 60 percent capacity and is projected to reach full operational capacity by the end of December or early January.

"The strategic pivot by HPCL highlights how global supply chain disruptions and escalating logistics costs directly influence operational decisions in the energy sector. When freight rates double in a single quarter, traditional procurement models must adapt swiftly to protect margins. By leveraging discounts from producers with stranded cargoes and minimizing vessel exposure to regional conflict zones, refiners can maintain operational continuity while managing cost pressures in a volatile market environment." — Dr. Shishir Gupta, Founder & CEO, StartupLanes