Hormuz closure forces BPCL to rewire its crude sourcing strategy

State-run refiner Bharat Petroleum Corporation (BPCL) is reviewing its crude imports on a near-daily basis and scaling up spot market purchases, Reuters reports, citing Chairman Sanjay Khanna. The shift comes in the wake of the Strait of Hormuz closure, which has disrupted established supply chains and sent crude prices soaring.

BPCL originally planned on sourcing 55% of its FY 2027 crude via annual contracts, heavily leaning on Middle Eastern producers. With several Gulf suppliers declaring force majeure, the refiner has been forced to tap into the spot market to ensure its three Indian facilities — which hold a combined capacity of 706k bbl / d — remain operational at a 115% capacity.

The fallback option is not as profitable: While Russian crude continues to meet roughly 40-45% of BPCL’s requirements, the financial buffer it once provided is shrinking. Markdowns on Russian oil have narrowed significantly to USD 5-6 5-6 / bbl against dated Brent, down from the USD 10-12 / bbl seen earlier.

All eyes are now on Saudi flows: BPCL expects the reliance on spot cargoes to ease if Saudi Arabia successfully restores capacity along its east-west pipeline. However, Aramco has only committed a small volume through the pipeline so far.

Mounting price pressure: The forced shift to spot buying coincides with a sustained freeze on domestic fuel prices, leaving state-backed refiners to foot the bill. Even after India raised retail fuel prices twice in a single week, BPCL continues to lose INR 25-30 per liter on diesel and INR 10-14 per liter on gasoline.

Why it matters: BPCL is currently caught in a squeeze amid unpredictable Gulf term supplies, heightened exposure to spot market volatility, and evaporating savings from Russian barrels. While spot purchases offer operational flexibility to keep refineries running, they also expose the company to daily price fluctuations and elevated freight risks.

Indian oil assures fuel stocks

Meanwhile, another state-run refiner, Indian Oil Corporation (IOC), has crude inventories for more than a month despite ongoing disruptions, Finance Director Anuj Jain said in comments picked up by Hindu Businessline. “LPG inventories have come down, but it is still being managed so that we have enough LPG availability pan-India basis.”

Diversification eases pain: Bottled cooking gas faced early supply constraints after disruptions in the Gulf, but IOC has since diversified sources to stabilize availability, Jain said. IOC expanded spot purchases from Indonesia, Nigeria, Angola, and Oman to meet the supply shortfall. Elevated spot prices are forcing the refiners to choose between passing costs to consumers or absorbing them internally.

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