HPCL is planning to establish an international oil trading desk, reported the Economic Times, citing a company official.  

The move is part of the company’s plans to secure the best prices and quality of crude oil in real time, potentially reducing import costs.  

Currently, the state-owned company is finalising the location for this trading desk. 

The establishment of the desk coincides with HPCL's execution of the Visakh Refinery Modernisation Project (VRMP).  

The VRMP aims to upgrade and expand the refinery's capacity from 8.33 million tonnes per annum (mtpa) to 15mtpa.  

This expansion will allow the refinery to produce petrol and diesel that meet BS-VI specifications and improve the refinery distillate yields from 76% to 86%. 

An oil trading desk is a strategic asset for companies that need to navigate the volatile international oil market.  

It facilitates the procurement of crude oil on a real-time basis, which is particularly beneficial for a country like India, which relies on imports for more than 85% of its crude oil requirements. 

HPCL is not the only company in India moving towards setting up an international trading unit.  

Bharat Petroleum (BPCL) is also considering establishing a similar facility, with potential locations being Singapore, Dubai or Gift City in Gujarat.  

Indian Oil Corporation (IOCL), a leading refiner and marketer in the country, already operates a trading desk in Delhi. 

Currently, India's public sector refiners, including IOCL, BPCL and HPCL, source approximately 70% of their crude oil through term contracts, with the remaining 30% procured on a spot basis.  

This strategy allows the companies to diversify their crude supply and mitigate the risks associated with market volatility.  

Term contracts offer long-term purchase agreements with fixed volumes and prices, while spot contracts are for immediate purchases from suppliers. 

For Indian companies, West Asia remains a key source of crude oil due to its geographical proximity.  

The new trading office could also provide HPCL with opportunities to engage in energy derivatives trading, international financing and potential future joint ventures. 

HPCL had previously considered setting up a trading desk eight years ago but decided to conduct a more detailed analysis of the prospects before proceeding.  

In September 2023, HPCL reached an agreement with Oil and Natural Gas Corporation to purchase crude oil produced from fields off the coast of Mumbai.