Multiple government officials and industry executives said domestic refineries will continue to buy cheap Russian oil with no major shipping or insurance trouble expected as the market rate for the key grade has fallen below the cap.
Indian refiners may be able to source most of their Russian oil purchases at a rate lower than the West’s price cap of $60 after international prices fell.
India hasn’t backed the price cap and may yet end up paying lower rates since Russia can’t defy the market or reduce discounts to sell at rates higher than the cap, Indian industry executives said. The flagship Urals crude, which made up 80% of India’s Russian oil imports in November, is trading at around $49 per barrel while ESPO blend and Sokol are trading at around $62 and $69 per barrel, respectively.
Multiple government officials and industry executives said domestic refineries will continue to buy cheap Russian oil with no major shipping or insurance trouble expected as the market rate for the key grade has fallen below the cap. The US and its allies have barred the use of its shipping, insurance and financial services for any Russian oil deal struck above the cap of $60.
“The price cap looks more like a posturing. Even the West may not want Russian oil to go off the market,” said MK Surana, the CEO of Ratnagiri Refinery and Petrochemicals and former chairman of HPCL.
“Very low cap might motivate Russia to consider reducing production rather than produce at uneconomical rates which would reduce overall global supplies and push up prices for all,” Surana said.
Russia has said it won’t supply to countries backing the cap and may even consider cutting production. But the market doesn’t seem to be too worried about Russian supply. Instead, growing concerns about global economic health has sent the benchmark Brent down to $79 per barrel from $87 at the beginning of December. Russian oil continues to sell at a deep discount to Brent.
“If Russia cuts discounts, India will not buy Russian oil,” said R Ramachandran, former chief of refineries at BPCL. “India’s aim is not to please Russia but to please its own people.”
Refiners buy Russian oil from the spot market. The contracts are signed a month or two in advance of the date of loading, and prices are usually linked to the average benchmark rates for the month of loading. So, if the current price trends reverse by the time of loading, purchase prices may change. Indian refiners mostly take Russian crude on a delivered-at-port basis, which reduces both the risk of delivery as well as price discounts for them. Since the traders arrange tankers, insurance, and finance, they pass on lower discounts to refiners.