The lower freight costs will largely offset the impact of the plunge in discounts, retaining the attractiveness of Russian oil for Indian buyers, they said.
Narrowing discounts and concerns over rupee payments notwithstanding, Russia will likely retain its newly acquired tag of India’s top oil supplier because of a sharp fall in freight, according to analysts and sources from oil marketing companies.
The lower freight costs will largely offset the impact of the plunge in discounts, retaining the attractiveness of Russian oil for Indian buyers, they said.
Freight rates for delivery of Russian oil to western India from Baltic ports, which had shot up to around $18 per barrel in early 2023 following western sanctions last December, began moderating after March, and are now down to less than $10 a barrel.
“The cost of transportation of Russian oil to western India from Novorossiysk currently stands at $6.8-7 per barrel, and $9.5-10 per barrel from Baltic ports,” head of economic department at Russia’s Institute for Energy and Finance Sergey Kondratyev said in an article for InfoTEK analytical centre.
Kondratyev expects the freight cost to continue falling as there is high supply of tankers with stable demand for Russian Urals.
“In early 2022, almost no one expected Indian refineries to swiftly adjust to refining Urals, whose content differs from that of commodities from Iraq and Saudi Arabia. However, now the share of Russian oil in India’s imports surpasses 45%,” he said.
As the market for freight rates quickly adjusted to new conditions, Russian oil suppliers started lowering discount rates. The Russian government has decided to narrow down the Urals oil discount to Brent to $20 per barrel now from $25 from September.
For Indian refiners, the $25 discount translated for several weeks to an actual advantage of only $10-17 due to higher freight costs, insurance and expenses related to third party traders. This discount on landed basis has come down to $4 in July, but is set to inch up now, as freights are falling.
“Russia is also doing its calculation. They want their crude to be attractive enough. They will see that if freight rates are easing they can lower the discounts so that on a landed basis it still remains attractive for India,” said Prashant Vasisht, vice president and co-head, corporate ratings, Icra.
Russian share in Indian oil import, which was below 2% before the West imposed a cap of $60 a barrel on Russian oil after it invaded Ukraine in February 2022, shot up to about 30% by the end of FY23. It kept on rising and was above 40% in May.
According to Reuters, India’s imports of Russian oil edged up to an all-time high in June, with the country’s oil refiners taking nearly 2 million barrels/day of Russia oil in the month. “In terms of market share, Russia supplied about 42% of India’s crude oil imports in April-June, the first quarter of India’s fiscal year, the data showed, while the Middle East share rose to about 41% after slipping in the previous three months.” the agency reported.
Analysts believe Russia will continue to have a lion’s share of Indian oil imports in the near future. It became India’s top supplier in October 2022 with a 22% share, surpassing traditional sellers Iraq (20.5%) and Saudi Arabia (16%).
“Discount of $4 per barrel is still sizeable. On a per dollar basis also it will make a lot difference in millions,” said Vasisht.
The Indian government wants to increase the share of long-term oil deals from the current 70% to protect from price volatility seen in the spot market, said an oil ministry official recently. India’s largest refiner Indian Oil signed a term deal in March to raise oil imports from Russia’s Rosneft.
Source:financialexpress.com