Indian state refiners are exploring the Middle Eastern crude market as spot supplies from their primary supplier, Russia, have diminished significantly. This shift could potentially bolster prices for high-sulphur oil.
Key Highlights:
Supply Shortages:
Three major state refiners—Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL), and Hindustan Petroleum (HPCL)—are facing a shortfall of 8-10 million barrels of Russian oil scheduled for January loading.
Continued issues in securing Russian oil in the spot market are anticipated as Moscow’s domestic demand increases and it fulfills commitments under the OPEC agreement.
Inventory Management:
The refiners indicated they can rely on their inventories to meet crude processing needs in March.
Some refiners may opt to lift additional crude from Middle Eastern suppliers under optional volumes in existing contracts or issue a spot tender for high-sulphur oil.
Historical Context:
IOC had previously floated spot tenders to purchase sour grades in March 2022, showcasing a proactive approach to sourcing alternatives.
Impact of Sanctions:
India has emerged as the largest importer of Russian crude following the European Union’s sanctions on Russian oil after the 2022 invasion of Ukraine. Russian oil now constitutes over a third of India’s energy imports.
Decline in Russian Exports:
Russian spot crude exports have decreased since November due to refinery operations resuming after maintenance and adverse weather affecting shipping.
A significant portion of Rosneft’s supplies is committed to a deal with Reliance Industries, limiting availability for spot sales.
Economic Considerations:
Despite the availability of alternatives, refiners express concerns that switching from Russian oil could negatively impact their economics, given the discounts on Russian supplies due to sanctions.
Payment Dynamics:
While some traders are willing to supply Russian oil for payments in Chinese Yuan, Indian state refiners ceased this practice last year following government advice.