 "Crude oil")
Indian purchases of Russian crude oil declined by around 25 per cent in the first half of August, the steepest month-on-month drop in terms of volumes, with refiners expecting further falls amid contract negotiations for late September/October deliveries, according to industry officials and ship tracking analysts.
Lower discounts, coupled with higher procurement costs, will erode margins and hurt Q2FY24 earnings at state-run refiners, analysts said.
Shipments of Russian oil loaded for India dropped to a little less than 1.5 million barrels per day (bpd) in the first fortnight of August from around 2 million bpd in July, according to the loading data from Paris-based market intelligence agency Kpler and London-based market intelligence agency Vortexa.
Russian purchases accounted for 36 per cent of India’s crude oil import in August from 44 per cent in July, the Kpler data shows.
“We expect Russian crude oil import into India to slow as Russia scales back on its export amid lower production and higher domestic runs,” said Serena Huang, an analyst at Vortexa.
Kpler too expects Russian purchases to average 1.6 million bpd until September.
Russia is making voluntary cuts of 500,000 bpd this month and 300,000 bpd next month, according to its officials. Around 445,000 bpd of the cut is in Baltic Sea export, which represents Russia’s lowest-margin exported barrel since the bulk sails four weeks to India, according to US market intelligence provider Energy Intelligence.
A Mumbai-based refiner confirmed to Business Standard that Russian shipments might come in lower this month and the next, at around 1.5 million bpd with an even steeper fall expected for October deliveries because discounts had more than halved from $10-13 a barrel early this year. “At $3-4 a barrel, Russian oil is not workable. We need $7-8,” the refining official said.
Huang said despite the fall, Russian oil was competitive against other grades of oil. But the official said big banks like State Bank of India, Bank of Baroda, and ICICI Bank were making life “miserable” for refiners, demanding extensive documentation and refusing to entertain payments on trades made above $60 a barrel, a cap imposed by Western powers. Higher discounts also help keep Urals below the sanctions threshold.
Indian refiners may slash purchases of Russian oil for October deliveries from July levels as they talk to traders on supply after discounts on Russian oil slumped to the lowest levels since the Ukraine invasion last February, industry officials said. Russian purchases may drop below 1.5 million bpd in October unless traders decide to forgo more of their margins and pass them on to refiners, the Mumbai-based refiner said. Freight rates have also dropped to $6-8 a barrel for Russian oil because of a drop in purchases, the refining official said.
The steep drop in Russian purchases threatens to hurt India’s economy by depriving the country of cheap, discounted fuel. India imports over 85 per cent of its crude oil needs. Barring Iraq, whose supplies are limited, Gulf crude oil from places like Saudi Arabia and the United Arab Emirates cost $14-21 a barrel more than Russian oil did in June, the Indian customs data shows.
State-run refiners, led by IndianOil, Bharat Petroleum, and Hindustan Petroleum, will see an impact on July-September earnings because of higher costs of purchases and an inability to pass them on to consumers amid the election season, analysts said. Oil-marketing companies were planning to cut pump prices based on Q1 results but that will have to wait, an industry source said.
“Crude prices are high, marketing margins on diesel in early August were negative,” said Prashant Vashisht, senior vice-president and co-group head at Mumbai-based ratings agency ICRA. “If there’s nothing to support earnings from Russian discounts and with negative marketing margins, earnings would be dampened,” he added.
European benchmark Brent rose above $86 a barrel last week, the highest since April. The Indian crude oil basket averaged $77 in the April-June period and $87 this month. New Delhi and Indian refiners have saved billions of dollars in the last 18 months from purchases of discounted Russian oil. The surge in Brent and Urals puts such savings at stake.
India imported Russian oil of 1.4 million bpd in January, the lowest this year, after the G7 tightened sanctions on Russia in December.
