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ONGC has raised objections to the discounts, asserting that the imposition of a windfall profit tax by the government has nullified any advantages resulting from the recent surge in oil prices.
According to media reports, ONGC has entered into long-term agreements with refiners to sell crude oil produced from Mumbai offshore fields at a premium to the global benchmark Brent.
Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) have each signed agreements to purchase approximately 4.5 million tonnes of crude oil from Oil and Natural Gas Corporation (ONGC).
Brent, the most well-known global standard for the raw material used to produce fuels like gasoline and diesel in refineries, is currently trading at USD 80 per barrel. Under the pricing terms of the term contracts, ONGC would receive USD 80 plus USD 0.8 for selling oil to HPCL and BPCL.
ONGC's resources in the Arabian Sea, off the coast of Mumbai, yield 13–14 million metric tonnes of crude oil annually. A rule requiring the sale of oil from blocks awarded before 1999 to government-nominated clients, primarily state refiners, was eliminated by the government in June of last year.
Producers like ONGC and Oil India were not receiving the highest market price as a result of the previous rule.
Following that modification to the regulations, ONGC began holding quarterly auctions for crude oil extracted from the western offshore fields of Panna/Mukta and Mumbai High.
Refiners like Indian Oil Corporation (IOC) sought reductions equal to the premium the company received in the first auction over Brent, the crude oil that its Mumbai offshore is most similar to in quality.
In the middle of last year, the discount on Russian Urals grade was as high as USD 30 per barrel; it is currently just about USD 6-7. Refiners like IOC, according to sources, claimed they required discounts since they lost money when they sold petrol and diesel for less than what it cost to control inflation.
ONGC objected to the reductions, claiming that by imposing a windfall profit tax, the government has eliminated any benefits of the recent spike in oil prices.
