Higher discounts on Russian oil this month may help Indian refiners reduce crude sourcing costs and trim fuel marketing losses even as Brent crude crosses $95/barrel, weakening the country’s finances
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Russia increased discounts on crude oil sales in September by 25-50 per cent for Indian refiners after their objections threatened to erode Russia’s over 42 per cent market share in India’s crude imports, industry officials said. Cheaper Russian oil has spurred a rebound in Indian purchases this month from a seven-month low in August.
Discounts on Russia’s benchmark Urals, a sour, high-sulphur grade similar to Gulf crudes sourced by Indian oil companies, had dropped to lows of $3-$4 a barrel last month but have since expanded to $5-$6 a barrel this month, according to government officials and an official from a Mumbai-based refiner involved in negotiations with Russian exporters. Indian buyers resisted efforts by oil traders to reduce discounts on benchmark Russian Urals grade sales during talks in mid-August for late September and October deliveries, another refining official said, forcing traders to increase discounts.
Indian refiners find Urals competitive only when discounts exceed $5 a barrel, an industry official said, because they must import expensive light, sweet grades to blend with Urals for processing in their refineries. Additionally, paying for Russian oil continues to be a challenge, with most payments now being made in UAE dirhams. A discount of less than $5 a barrel makes Gulf crudes more competitive.
Rosneft is the largest exporter of Russian oil to India. It accounted for 42 per cent of supplies shipped from Russia to India this year, according to Kpler. The company did not respond to Business Standard regarding whether it has increased discounts to Indian refiners. Most Russian oil shipments are routed via intermediaries.
Higher discounts could benefit New Delhi and Indian oil companies amid rising global crude prices. JPMorgan warned that Brent crude prices could soar as high as $150 a barrel by 2026 from $93 a barrel currently. The US bank forecasts Brent prices at $90-$110 a barrel in 2024 and between $100 and $120 a barrel in 2025, with a supply deficit of 1.1 million barrels a day in 2025, expanding to 7.1 million barrels a day in 2030.
Indian purchases of Russian oil may increase to around 1.83 million barrels a day this month compared to 1.55 million barrels a day in August, when the discounts were at their lowest this year, according to data from Paris-based commodity intelligence agency Kpler and refinery industry officials. Russia’s share of the Indian crude imports market was over 43 per cent in July but fell to 35 per cent in August after discounts decreased.
An increase in Russian oil imports comes as European benchmark Brent oil prices have soared to over $95 a barrel this month, the highest level in 10 months. This is a significant increase for India: crude has risen by around $20 a barrel since early July. Let us examine the impact of rising crude oil prices on India’s oil import costs. For example, if annual crude imports average at last month’s levels of around 4.4 million barrels a day, India might end up paying an additional $90 million daily on its crude purchases compared to early July levels, according to calculations based on Indian customs data. On an annual basis, India will pay an additional $32 billion for oil imports at current rates.
Higher discounts on Russian oil help reduce India’s costs for imported crude. Even a difference of a few cents a barrel is sufficient for Indian refiners to find value in their purchases, an industry official said. A Mumbai-based refiner noted that a $1 a barrel increase in discounts leads to several million dollars in savings. India might have saved $3.7-$4 billion this year from Russian oil, offsetting the marketing losses for Indian state-run oil companies led by IndianOil, which had frozen pump prices since May 2022. The country paid $69.8 a barrel for Russian crude in the calendar year 2023, compared to $75 a barrel for Iraqi oil and $85 a barrel for Saudi crude on a landed basis, according to Indian customs data.
Russian exporters used to offer as much as $10-$13 a barrel in early 2023 after the G7 group of nations introduced a $60 per barrel price cap on sales of Russian oil. This meant that Western shipping and insurance services were unavailable for Russian crude supplied above the price ceiling on a Free On Board (FOB) or loading basis.
An increase in Russian oil imports comes amid European benchmark Brent oil soaring to over $95/bbl this month, the highest level in 10 months. That is a sticker shock for India: crude has jumped by around $20 a barrel since early July. Let us analyze the impact of rising crude oil prices on India’s oil import costs. For example, if annual crude imports average at last month’s levels of around 4.4 million bbl/d, India may end up paying an additional $90 million daily on its crude purchases compared to early July levels, according to calculations based on Indian customs data. On an annualized basis, India will pay an additional $32 billion for oil imports at current rates.
Higher discounts on Russian oil help trim India’s costs for imported crude. Even a difference of a few cents a barrel is sufficient for Indian refiners to derive value in their purchases, an industry official said. A Mumbai-based refiner noted that an increase in discounts of $1/bbl leads to several million dollars in savings. India may have saved $3.7-$4 billion this year from Russian oil, helping pare the marketing losses for Indian state-run oil companies led by IndianOil, which were prompted to freeze pump prices since May 2022. The country paid $69.8/bbl for Russian crude in calendar 2023 compared to $75/bbl for Iraqi oil and $85/bbl for Saudi crude on a landed basis, according to Indian customs data.
Russian exporters used to offer as much as $10-$13/bbl in early 2023 after the G-7 group of nations introduced a $60/bbl price cap on sales of Russian oil. That meant western shipping and insurance services were unavailable for Russian crude supplied over the price ceiling on a FOB basis or loading basis.
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