As Russian discounts erode, Indian oil refiners may shift back to the Gulf

Indian state refiners may not buy Russian oil as the discounts have dwindled and the payment-related troubles continue, The Economic Times (ET) has reported. The report cited a petroleum ministry official saying that the state-owned oil refiners will increase their purchases from their traditional suppliers in the Gulf, including countries like Iraq and UAE. The official added that these countries are also willing to offer credits for a longer period of time.

The developments come in as the Russian oil discount has evaporated with time, and it no more makes sense for Indian companies to continue buying Russian oil. The official did not share details about the current level of discount from Russia, the report said.

Earlier, Indian state refiners enjoyed unprecedented benefits from their purchase of Russian oil, which was supplied on a delivered-at-ports basis, meaning that all the logistics-related risk was to be taken care of by the suppliers. At their peak, India benefited from discounts of around $12-13 per barrel, while the discounts quoted in the international markets were about $30-32 per barrel. Later, discounts fell to $6-7 per barrel, and now they have reduced further.

Iraq and UAE are willing to offer credits for longer periods of time, and they are also located closer to the Indian shores. The official told ET that given such circumstances, it would make sense to source more oil from the Gulf countries than from Russia. However, the official did not talk about the comparative difference between the oil from Russia and that offered by Iraq and UAE.

Normally, suppliers offer a credit period of 30 days, but Iraq and the UAE are willing to give credit for 60 days, the official told the newspaper.

Industry experts cautioned about the shift and said that it won't be easy to shift from Russian oil quickly as it forms 40 per cent of India's crude imports now. About 67 per cent of all Russian imports go to state-run refiners; the experts said that even one dollar discount per barrel makes a lot of difference given the huge quantities involved. The industry executive added that an extended credit period is not as attractive as a discount on the price tag, the ET report said.