Indian Oil, RIL tap Iraqi oil wells amid surging cost of Russian Urals

This reflects India's growing reliance on Russian grades while balancing them out with purchases from Iran suppliers

oil barrels
Photo: Bloomberg
S Dinakar
5 min read Last Updated : Oct 01 2023 | 10:35 PM IST
Indian Oil Corporation (IOC) and Reliance Industries Limited (RIL), two of India’s biggest crude oil importers, are reducing purchases of Russian crude oil while boosting shipments of Iraqi grades. The cuts reflect caution on their part after benchmark Russian Urals traded 28 per cent over a G7 (Group of Seven) sanctioned price cap, according to ship tracking data and industry sources. 

Rising purchases of Iraqi oil also indicate a desire by India's biggest refiners to lower a growing reliance on Russian grades while balancing them out with purchases from traditional Gulf suppliers in the interests of India's energy security.

Purchases by IOC, the biggest procurer of Russian oil from India, declined by 8.4 per cent in September to 481,000 barrels per day (bpd) from August, while RIL shipped in 22.5 per cent fewer cargoes at 303,000 bpd, as of 30th September, according to ship tracking data from Paris-based market intelligence company Kpler. Also, IOC’s September volumes are 35 per cent below the May peak of 736,000 bpd and 22 per cent down from July, while RIL's volumes are nearly half of a 575,000 bpd March peak, according to the data.

IOC increased purchases of Iraqi Basrah grades, a medium, sour crude similar to Russian Urals and well suited to Indian refineries, to 427,000 bpd in September, 13 per cent higher from August and the highest in 6 months, Kpler data shows. Reliance increased imports of Iraqi crude by 39 per cent in September to 261,000 bpd in September from August.

Slowing purchases of Russian oil coincide with a sharp escalation in prices of Urals, which accounted for 67 per cent of India’s purchases of Russian grades in September, to levels over the price cap, complicating payment issues for refiners, industry officials said. The G7 has barred sales of Russian oil at over $60 per barrel, on a free-on-board (FOB) basis, from using Western carriers and insurance services.

However, overall imports of Russian crude rose by 11 per cent in September to 1.73 million bpd, accounting for over 42 per cent of India’s overall crude imports, according to Kpler data. Describing September volumes as an outlier, two Mumbai-based refining sources pegged India’s purchases of Russian oil for the rest of the year to oscillate between 1.5 to 1.7 million bpd levels. Bharat Petroleum, Hindustan Petroleum and HMEL increased purchases of crude from Russia by a combined 75 per cent from August to more than make up for the decline in imports by IOC and Reliance.

Supply peaks of over 2 million bpd of discounted Russian oil to India seen in the April-July period, enabling hundreds of millions of dollars in savings in crude procurement for India compared to more expensive Saudi grades, will not be possible this year until Russia boosts production, a Mumbai-based refining official said. Moscow has reduced output by an additional 300,000 bpd on top of the OPEC+ grouping’s mandated cuts, which will continue until the end of the year, according to Russian officials.

Russian discounts on Indian oil sales have also halved from $13 per barrel in early 2023 to around $5-$6 a barrel now. "We cannot expect to see such double-digit discounts again unless the West tightens the screws further on Russian oil," a state-run refining official said. Indian refiners find the Urals competitive only when discounts are wider than $5/bbl, the official said — $4/bbl is the break-even level.  

Indian banks, wary of attracting the attention of Washington, have delayed or denied payments of Russian oil trading over the cap, industry sources said. That was less of an issue until July when the Urals traded below $60 a barrel. But with European benchmark Brent inching towards $100 a barrel levels because of OPEC+ output cuts, Urals has turned expensive. There are no payment issues for Iraqi crude.

Some traders shipping Russian fuel are still presenting invoices showing the Urals at below $60 a barrel on a FOB basis by inflating freight and insurance rates, an industry official said. But others are giving documents with the Urals quoted above the cap. The official said that payments are made in the UAE dirhams, but trades above the price cap present added complications. Banks are demanding proof that cargoes were shipped on non-Western vessels.

Urals, Russia’s main export grade, averaged $77.03 per barrel from August 15 to September 14 compared to an average price for the dated Brent crude benchmark of $88.61/bbl during the same period, according to data from the Russian finance ministry and New York-based market intelligence provider, Energy Intelligence. 

The Urals discount to Brent had widened in December and January to more than $40/bbl after the EU banned most imports of Russian oil, and the G7 adopted a price cap. But Russia rerouted its crude exports to India and China, increasing the share of non-western vessels to ship its oil. Improved logistics helped Russia to narrow the discount and push the Urals price well above the $60 price cap.


Topics :Indian Oil CompanyReliance IndustriesRussia Oil productionIndia oil importsOil imports

Next Story