Russian oil discount for Indian refiners jumps to $8 a barrel
Discount has increased from about $2 per barrel in October to up to $8 in January. The lower price of Urals crude will help India’s import bill as oil prices have tumbled about 20% in the past year to around $60 a barrel. About 88% of India's crude demand is met through imports.
NEW DELHI : Russian crude suppliers are now offering Indian refiners a higher discount of up to $8 a barrel, doubling since October after sanctions were announced on Rosneft and Lukoil, according to three people aware of the development. That could increase oil shipments from the non-sanctioned oil suppliers from the Eurasian nation, experts said.
The discounts on Urals crude hovered around $2-4 a barrel after the 23 October US decision to impose sanctions on the two largest Russian crude suppliers, according to data from Finnish think tank Centre for Research on Energy and Clean Air (CREA). In November, after the sanctions took effect, they averaged $6.6 per barrel.
"Discounts will see a further increase. However, even if the discounts do not surge from here on, there may be an increase in purchases from Russia," said one of the three people mentioned above–all three spoke on the condition of anonymity.
“Although India has diversified its sourcing of oil, in the short term, no other supplier can fill the gap and meet the demand which Russia has been catering to," the person said.
The discounts have now jumped significantly to as high as $8 per barrel, said Prashant Vashisht, a petroleum sector expert and senior vice president and co-group head, corporate ratings at Icra Ltd.
To be sure, in December, Russian oil imports by India declined to 1.2 million barrels per day (mbpd) compared with 1.8 mbpd in November, showed Kpler data.
Russian oil turned cheaper following Western sanctions after its invasion of Ukraine, with the highest discounts of around $30 per barrel in 2022. China and India are the top buyers of this crude.
The lower price of Urals crude will help India’s import bill as oil prices have tumbled about 20% in the past year to around $60 a barrel. About 88% of India's crude demand is met through imports. Every dollar decline reduces India’s oil import expenditure by about ₹13,000 crore on an annualized basis.
“Higher discounts are good for Indian refiners, more so at a time when crude prices are already around $60 per barrel," said Madan Sabnavis, chief economist with Bank of Baroda. “Given that Indian refiners are selling their products in the international market at market prices and the domestic retail prices are also stable, both a decline in prices and higher discounts would augur well for them."
However, he cautioned that it depends on how much Indian refiners can purchase from Russia amid the international pressure. “Also, the scalability of non-sanctioned Russian players is also to be seen."
Queries emailed to IndianOil Corp, Bharat Petroleum Corp, Hindustan Corp, Reliance Industries Ltd (RIL) and Nayara Energy on Thursday afternoon remained unanswered.
Growing refining capacity
India is the world’s fourth-largest refiner with an overall capacity of 258.1 mtpa, which is expected to expand to 310 mtpa by 2030 when new refineries, including BPCL's Andhra Pradesh and HPCL's Rajasthan refineries, add about 18 mtpa. They, however, will need to secure crude oil to refine.
Rosneft and LUKOIL accounted for about 60% of Russia's $56.8 billion crude oil exports to India in FY25. Although Russia continues to be the largest supplier, refiners lowered imports from that country.
"The recent fall in imports from Russia does not come as a concern, with imports from non-sanctioned entities through clean fleets to continue as per the requirement of refineries and economic viability," said an official with a state-run refiner, requesting anonymity.
The Russian entities not under sanctions include Tatneft, Redwood Global Supply, Rusexport, Morexport, and Alghaf Marine.
“While direct purchases have softened, the underlying demand signals remain intact, and Russian barrels are expected to retain their presence in India’s crude basket given pricing economics, refinery compatibility, and limited near-term alternatives," said Sumit Ritolia, lead research analyst for refining and modelling at Kpler.
Indian refiners have been diversifying sources of oil and increasing supplies from West Asia, Brazil, Argentina, Colombia, Guyana, West Africa, US and Canada. In December, Iraq was the second largest supplier to India, followed by Saudi Arabia, the United Arab Emirates (UAE), the US, Kuwait, and Brazil.
Russian oil imports may rebound
In FY25, Russian supplies, averaging 1.8 million barrels per day (mbpd), accounted for 35% of the country's total imported crude, driven by deep discounts starting in February 2022. Prior to FY23, the country catered to only about 2.5% of India's oil imports.
India imported crude worth $161 billion last fiscal. Higher discounts and lower crude prices have already lowered the oil import bill in the current fiscal: $80.9 billion as of November compared with 92 billion a year earlier.
When exports face uncertainty, as a trade deal with the US has not been finalized yet, low oil prices and discounts may help India in narrowing its current account deficit, said Sabnavis.
Experts say that discounts may go up further, along with new supplies from Russia
"...Russia is expected to use supplies from the sanctioned entities for its captive consumption, while the non-sanctioned suppliers would sell more and more to global buyers like India," Vashisht said.
Kpler’s Ritolia called the decline in Russian crude shipments to India in December a “near-term adjustment". Russian crude imports into India are expected to “recover gradually from January as new intermediaries step in and supply chains re-establish", Kpler’s Ritolia said. “Russian crude flows into India are increasingly being rerouted through a growing web of intermediaries, traders, and logistical workarounds."
topics
