Landed Cost of Imported Crude Oil

The landed cost of imported crude oil is the total cost of buying crude abroad and bringing it to the specified destination in India. It combines the purchase price with transport, insurance and other applicable import-related charges, converted into rupees where necessary. The destination must be specified because delivery to an Indian port and delivery to a refinery can involve different costs.

Determining the purchase price

The starting point is the contract price, not simply the international crude price quoted in a news report. Crude grades differ in quality, location and contractual terms.

• Contracts commonly link the price to a benchmark crude price, with a premium or discount for the particular grade and agreed delivery terms.
• Quality characteristics, including density and sulphur content, influence the relative price of different crude grades.
• The delivery terms determine which costs are already included: an FOB quotation excludes the main ocean freight and insurance, whereas a CIF quotation includes cost, insurance and freight to the named destination port.

Adding delivery costs and converting into rupees

A simplified calculation is: rupee landed cost = foreign-currency acquisition and delivery costs × the relevant exchange rate + applicable rupee-denominated charges. Every component must be expressed for the same quantity, such as one barrel or one tonne.

• Ocean freight depends on factors such as the shipping distance, tanker market conditions and route; insurance adds protection against covered transit risks.
• Port, unloading, handling and other applicable delivery charges must be included where they are not already covered by the contract price.
• Applicable customs duties and import levies add to the cost; their assessment follows customs valuation rules, rather than merely the commercial invoice total.
• For a dollar-denominated purchase, rupee depreciation raises the rupee cost if the dollar price and other conditions remain unchanged.
• Inland transport must also be counted if the stated destination is the refinery rather than the import port.

Interpreting the final figure

A valid comparison uses the same delivery point and cost coverage for each crude grade. Freight or insurance already included in a quotation must not be added twice.

• A lower purchase price need not produce a lower landed cost if additional transport and delivery expenses outweigh the discount.
• Landed crude cost is not the retail price of petrol or diesel; refining, product distribution, taxes and margins belong to later stages of the supply chain.