Thinking they could buy cheap Russian oil, Indian refineries were “furious” when they still imported millions of barrels at an “exorbitant” rate.
India’s refiners – among the few eager to buy Russian oil – are baffled as to why they are paying exorbitant costs for shipments of crude oil at record prices in Europe. Europe.
Refiners in the South Asian country recently purchased millions of barrels of Urals oil through open tenders. The price they won was even $1 a barrel above the London benchmark Brent, traders said. Meanwhile, Urals oil is being offered at a discount of more than 30 USD/barrel in Europe.
Refinery officials in India, who spoke on condition of anonymity, said they don’t understand why they haven’t received any discount offers like what they see in Europe, while being strongly supportive of imports. oil from Russia.
Not receiving discounts, inflationary pressure is weighing on this world’s leading oil importer when oil prices spiked above $100/barrel due to the conflict between Russia and Ukraine.
India itself is also under great pressure from allies, including the US, to stop importing Russian energy. Russia and India have been long-time trading partners in many commodities, from energy and food to weapons.
Why do Indian refineries still have to buy Russian oil at high prices?
Indian refiners typically purchase spot crude through open tenders. There, the potential seller will publish details of the oil type, volume, price and other offers.
Officials at these factories said the open bidding process ensures transparency and accountability, but can be “manipulated” by sellers with a clear understanding of the market. Right now, Urals offers are only marginally cheaper than other medium-sour oils commonly sold in India such as Oman and Upper Zakum – instead of as deeply as in Europe.
Vitol Group is one of the units that is selling oil to India at “exorbitant” rates, according to the Indian refinery representative. The company declined to comment on specific activities.
Meanwhile, traders claim that any company that can buy Urals oil at a price close to the discount for the European market can immediately collect 10-20 USD / barrel when selling to India, after after deducting shipping, insurance and other costs. This is a staggering profit in an industry where competition reduces margins to just a few cents per barrel.
At the end of March, Suezmax tankers with a capacity of 1 million barrels were chartered for the equivalent of nearly $5 a barrel to transport crude oil from the Black Sea to India. The changed shipping structure means an additional loss of 4 USD/barrel during the 1-month journey. However, each shipment still brings in a profit of 10-20 million USD for the seller, according to traders’ estimates.
The main reason why Urals oil hasn’t dropped in price in India, according to an Indian refinery official, is because only a handful of companies are buying Urals oil and selling it in Asia. This means they don’t have a lot of competition, which means they don’t need to cut prices.
Over time, however, more and more sellers are joining this new “piece of the pie” as they come to understand the restrictions and sanctions against Russia. As a result, the discount for buyers in India is bound to increase.
Reports from forks and carriers show that companies such as Vitol, Trafigura Group, Petraco Oil, Glencore PLC, Litasco SA and Gunvor Group are continuing to load crude oil from Russian ports – possibly due to contracts signed in advance.
These shipments can be shipped directly to the buyer or go through other complex shipping processes for a variety of reasons such as cost savings or avoidance of scrutiny.
Indian refiners have traditionally acted as passive buyers – that is, seeking to buy at the lowest price through bidding, rather than setting up separate companies to trade oil. This leaves them passive in finding the most affordable oils or buying and selling them for profit like the Chinese refineries.
Source: Bloomberg
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