Saudi Arabia cuts crude rates as India buys more oil from the US, Russia

Saudi Arabia is offering more competitive rates amid widening discounts of $5-7 per barrel offered on Russian Urals barrels and a surge in purchases of US crude oil by India

Sliding rates of crude oil from Saudi Arabia, one of India’s biggest fuel suppliers and a benchmark for other Gulf producers, to multi-year lows reflect a new-found assertiveness in India’s approach to sourcing the fuel and its ability to extract better terms from its traditional fuel suppliers by increasing purchases from newer ones in Russia and the United States (US), according to industry sources and company documents. 

Saudi Arabia has slashed the premiums on the official selling price (OSP) of Arab Light, a benchmark export grade, to the lowest in nearly five years and offered a big discount on Arab Heavy for January as it seeks to claw back market share from Russia and the US in India’s $137 billion crude oil market. Heavier crudes are of inferior quality and contain much more sulphur than lighter grades. 

In an atypical development, the US became India’s fourth-largest crude supplier in October and November, shipping 568,000 and 442,000 barrels per day (bpd), respectively, to overtake the United Arab Emirates (UAE), according to the data from maritime intelligence agency Kpler. 

The US accounted for 11.7 per cent of India’s crude oil import in October, nearly thrice the 4 per cent share for the entire 2024, calculations based on the shipping data showed. 

Saudi Arabia’s share has stagnated at a little over 13 per cent during the period. Russia’s was 37 per cent in November despite Washington’s sanctions. 

India has switched to discounted Russian grades like Urals, which is somewhat similar in quality to higher-priced Middle East grades, threatening the dominance of Gulf crude oil since 2022.

 

Indian refiners blend Arab Light and Heavy in ships at loading ports to create Arab Mix, a grade similar in character to Russian Urals, which accounted for 27 per cent of India’s oil import this year. By contrast, Saudi Arabia’s oil export to India, comprising all grades, accounted for only 13 per cent, the ship-tracking data showed.

 

State-owned Saudi Aramco will charge a premium of 60 cents per barrel versus the Dubai/Oman crude oil benchmark on medium and sour Arab Light crudes, the lowest increase since the 30 cents a barrel increase for January 2021, according to a document by Saudi Aramco and the historical data accessed by Business Standard.

 

Aramco cut premiums by 40 cents a barrel from December, and by $2.90 from April 2025, the highest charged this financial year.

 

Aramco offered a discount of $1.9 per barrel off Dubai/Oman for January for the Arab Heavy grade, the widest since the $2.25 per barrel offered for February 2023. OSPs serve as the benchmark price for Saudi Aramco to sell crude oil to customers around the world. The discounts expanded by 60 cents per barrel from December and compared to an annual high of $1.80 premium charged this April, according to the industry data.

 

Saudi oil prices matter to India because it is also the main reference price for other crude oil producers in West Asia including Iraq, India’s biggest crude oil supplier after Russia. Also, all of India’s term contracts, assuring guaranteed supplies, come from West Asia. 

 

Consumer-friendly

 

Aramco is turning “consumer-friendly’’ amid widening discounts of $5-7 per barrel offered on Russian Urals barrels and a surge in purchases of US crude oil by India, an analyst said.

 

India is also the fastest-growing major market for crude oil for the next decade, according to global forecasters led by the Paris-based International Energy Agency.

 

“Earlier, Aramco was not willing to listen to us in their routine monthly calls, seeking feedback on OSPs, but, of late, they are taking our concerns seriously,” a senior official from a state-run refiner said.

 

Another official said India’s demand for a discount on the OSP was not taken seriously in the past, but Aramco had turned more responsive recently.

 

He did not give details.

 

R Ramachadran, former refinery director at state-run Bharat Petroleum Corporation Ltd and an oil-industry consultant, said: “Russian oil, predominantly Urals, has disrupted sourcing by Indian refineries. Discounts available in the past few years have accelerated the processing of Russian crude oil and understanding their relative value to other Middle East grades, primarily Iraq and Saudi crudes.” China and the US too have reduced their dependence on Middle East grades, he added, mounting pressure on Saudi Arabia.

 

Arab Mix offers some of the best yields in terms of fuels and Iraq’s Basrah Heavy, a high-sulphur variety, gives some of the best margins for Indian refiners because of its low price, industry officials said. Arab Mix, when blended in the ratio of 65 per cent Arab Light and 35 per cent Heavy or 50/50, is superior to Urals on yields.  

 

The Urals blend has slightly inferior yields because it contains impurities like chlorides and higher nitrogen levels, Ramachandran said. Arab Mix is a benchmark crude oil for which most Indian refineries are designed, he added.

 

“They (Saudi Arabia) are also seeing more competition after India started sourcing from Russia, the US, Brazil, and West Africa,” Ramachandran said. “At one time over 80 per cent of the oil came from West Asia.” 

 

Other West Asian producers benchmark their prices to the Saudi OSP, which made Saudi Arabia dominant as it held sway over other Middle East grades, Ramachandran said.

 

Russian oil, which accounted for 2 per cent of India’s import in 2021, prior to the invasion of Ukraine, now contributes over 40 per cent in some months, the Kpler data showed. 

 

“Geopolitically, India has asserted itself with respect to crude-oil sourcing, apparently prompting a rethink among West Asian producers with respect to prices,” Ramachandran said.