State-owned refiners—Indian Oil Corp Ltd (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL)—continue to buy oil from Russian suppliers, and negotiations are underway for spot deals, said two people in the know of the developments.
One of the two people mentioned above said that over the past few days, two cargoes of Russian oil had been purchased by Indian refiners with better discounts than usual.
“OMCs (oil marketing companies) are negotiating for Russian oil supplies currently. There is no decision as to go slow or stop Russian oil,” said the person mentioned above. “They (Russian supplies) may have declined amid cheaper global oil prices and narrowing discounts in the past, but there is no decision on halting imports from Russia.”
“Although discounts have declined from the highs, of late, there has been a spike of around $1 per barrel in discounts in the latest few deals,” the person added.
The last two or three cargoes have been booked at a discount of up to $3 a barrel, compared to about $1.7 in the earlier purchases, and it is likely to rise further, even if not significantly, after US President Donald Trump’s censure of India for its Russian energy purchases, the person in the know said.
The discounts on Russian oil have narrowed down to single-digit from the high of around $30 per barrel in 2022.
“The deals which are being negotiated now are for deliveries to be made in September. Till then, refiners are already tied up,” said the second person in the know of the developments.
There was no response to queries on the issue sent to the petroleum ministry, IOC, BPCL, HPCL and Rosneft till the publishing of this report.
On 30 July, the US President announced a 25% tariff on Indian exports, starting 7 August, along with a penalty for India’s energy and defence purchases from Russia, which has been berated for its war with Ukraine.
The punishing announcement had raised concern over energy supply crunch and price increase. Russia exports about 4.5 million barrels of oil daily on an average, and if it goes out of the market global prices may shoot up as was witnessed in 2022, according to experts.
Prashant Vasisht, senior vice-president and co-group head, corporate ratings at ICRA Ltd, said refiners would need to carry out techno-economic feasibility before halting refining of a particular variety of crude oil and completely replacing it with another.
“Of late, prices have seen an uptick due to optimism of completion of the US-European Union (EU) trade deal. However, the demand-supply dynamics will play out, going ahead. Further, if supplies from Russia continue as usual and demand supply dynamics play out, prices may somewhat ease going ahead from the current levels,” Vasisht said.
The second person cited above said the supply of Russian oil is not prohibited since it is not sanctioned, as in the case of Iranian and Venezuelan crude, which are sanctioned and are not purchased by Indian refiners.
“The only thing OMCs need to respect, and they have always complied with, is the price cap (of $60 per barrel),” the person said.
The price cap announced by the US and G7 countries in December 2022. The European Union last month announced to lower the cap to about $47 per barrel, which will be implemented starting September.
Russian oil comprises of about 7% of the daily global oil consumption and 36% India’s total oil imports. On the back of deep discounts starting February 2022, after its invasion of Ukraine, Russia became the top supplier to India. Earlier, the country catered to only about 2.5% of India’s oil import. China and India are top buyers of Russian oil.
Although the US and EU have raised concern over India’s oil purhases from Russia, India has maintained that its energy procurement would depend on its needs. India imports over 88% of its crude oil requirement, and has diversified its oil sources to nearly 40 countries in order to ensure energy security.
Responding to the US President’s warning of secondary tariffs on countries that import Russian oil, minister for petroleum and natural gas Hardeep Singh Puri had said the country was not overtly worried, and would navigate any eventuality as there was enough supply in the market.