Indian refiners favor delivered crude in procurement shift as shipping costs mount

Indian state-run refiners are increasingly seeking crude on a delivered, or CIF, basis rather than on FOB terms, as geopolitical tensions drive sharp swings in freight and insurance costs, petroleum ministry officials and refiners said Oct. 26.

Under CIF arrangements, sellers cover the cost and risk of transporting crude to the buyer's destination. This allows Indian refiners to secure a more predictable landed cost and avoid exposure to sudden increases in freight rates, which have risen sharply amid disruptions and attacks involving vessels in the Gulf region, they added.

"We are buying crude on a delivered basis these days and not on FOB as we used to buy earlier," a senior Indian refinery official told Platts, part of S&P Global Energy, on Oct. 26.

Since freight costs for crude shipments have risen sharply in recent weeks compared with previous months, refiners are increasingly concerned that an apparently attractive purchase could become uneconomical by the time it reaches an Indian refinery, the official added.

Hindustan Petroleum Corp. Ltd. Chairman and Managing Director Vikas Kaushal told an investor call Oct. 23 that the state-run refiner was looking at buying crude on a landed basis, except when it could send a vessel to pick up cargoes at a relatively lower cost.

"It is now a volatile situation, on how the market is reacting," Kaushal said.

Refiners are increasingly comparing delivered crude costs from suppliers worldwide and selecting the lowest landed-cost options, rather than committing to cargoes on an FOB basis and arranging shipping separately, petroleum ministry and refinery officials said.

"Crude costs are higher as freight costs are higher and cargoes are getting hit in the Middle East," a refinery official said.

The scenario also reflects refiners' reluctance to maintain fixed term-contract and spot-market procurement ratios amid heightened uncertainty, Kaushal said. He added that HPCL was no longer relying on a 50-50 split between term and spot purchases, as geopolitical conditions had materially changed the economics of crude sourcing.

For state-run refiners, high crude and freight costs can squeeze margins and increase the risk of under-recoveries, particularly as they are expected to support cooking gas supplies for lower-income households, refinery officials said.

Venezuelan crude flows

Kaushal said HPCL was also undertaking technical initiatives to synchronize operations at its refineries to process heavy Venezuelan crude grades in the near future.

HPCL Rajasthan Refinery (HRRL) began operations on July 4. Its high complexity allows it to process Venezuelan crude, but the logistics still need to be worked out, said DLN Sastri, former director of refining at the Federation of Indian Petroleum Industry.

Indian companies could play a larger role in Venezuela's energy sector as the country's oil production increases, importing more of its heavy crude for processing while exploring new opportunities to invest in upstream projects, US Secretary of State Marco Rubio said Oct. 20.

"Venezuelan crude has traditionally flowed to Reliance Industries, but as production rises, more complex Indian refiners may explore opportunities to process heavier grades, such as Merey-16," said Benjamin Tang, head of liquid bulk at S&P Global Commodities at Sea.

According to CAS data, 12.6 million barrels of Venezuelan-origin crude, including in-transit volumes, are expected to be discharged at Indian ports in October, up from 10.2 million barrels in May, highlighting a sharp near-term increase in flows. Completed inflows of Venezuelan crude into India have averaged 214,000 barrels/day so far this year, with 82% of the volume delivered to Port of Sikka.

Russian flows

Another state-run refiner, Bharat Petroleum Corp. Ltd., is also adjusting its crude slate based on the delivered economics of competing supplies.

BPCL plans to increase Russian crude purchases for December delivery despite elevated freight costs, Director (Finance) V. R. Gupta told an investor call Oct. 26. The refiner's processing of Russian crude stood at about 37% over July-September, largely unchanged from April-June, he added.

"Prevailing freight and insurance rates are still high, although ample crude supplies are available in the global markets," Gupta said.

Russian crude discharges to India rose sharply in the first half of 2026, increasing from 1.17 million b/d in January to a peak of 2.43 million b/d in June, according to CAS data. Flows eased to 2.05 million b/d in July, 1.98 million b/d in August and 1.64 million b/d in September but remained well above January levels.

Crude oil futures settled lower Oct. 26 as traders took profits amid continued vessel traffic through the Strait of Hormuz and persistent risks of escalating tensions in the Middle East. NYMEX December WTI was down $1.51/barrel at $101.76/b, while ICE December Brent fell 91 cents/b to $115.81/b.

Strait of Hormuz vessel transits held steady at 17 on Oct. 25, with six VLCC movements, CAS said in an Oct. 26 report, despite continued attacks on shipping.