Govt aims to secure Russian crude oil term deal by next financial year

Falling crude prices, shrinking global demand growth, and Rosneft's focus on India, make the timing right

The government plans to strengthen ongoing efforts to secure a term deal for crude oil purchase from Russia by the next financial year, petroleum ministry sources said.

 

Russian state oil firm Rosneft's recent deal to supply record volumes of crude oil to Reliance Industries (RIL) shows the time is right to strike a major deal with the country, they added.

 

A joint front of state-owned refiners are discussing crude oil purchase from Russia under a term deal, and will be asked to step up talks, sources said. Crude oil from Russia is usually purchased on spot prices, while long-term contracts are usually reserved for crude from India's traditional import sources in West Asia. Spot purchase allows refineries to secure different grades of oil, otherwise unavailable.

 

"Oil prices have been on a downward trajectory for the past 6 months despite repeated bouts of major strife in West Asia. Globally, estimates of demand growth are being revised downwards. But India remains the only major economy where demand is forecast to be stable and growing. These factors have strengthened the hand of Indian (crude oil) buyers in any of the ongoing negotiations," a source said.

 

Brent crude prices reduced 9.3 per cent in the last 6 months to $73.95 per barrel, and crossed the $80 per barrel level only once in the last 4 months.

 

Meanwhile, the average discount of Russian Urals grade of crude oil to Dated Brent has held stable at $12.1 per barrel in the three months leading up to October, according to Platts, part of S&P Global Commodity Insights.

 

Despite ongoing tensions in West Asia and other uncertainties, the firm sees an easing of Platts Dated Brent to an average of $70 per barrel in 2025, down from $81 per barrel in 2024. Apart from subdued global oil demand growth, expected production increases from countries not part of the OPEC-plus bloc, were cited as reasons.

 

Increasing ties

 

Meanwhile, sources also pointed out that Rosneft's recent deal at a time it faces increasing scrutiny from the Biden administration shows it is serious about boosting ties with India. Last week, Reuters reported that Rosneft had agreed to supply nearly 500,000 barrels per day (bpd) of crude to upstream oil and gas major RIL in the biggest-ever energy deal between the two countries. The 10-year agreement amounts to 0.5 per cent of global supply and is worth roughly $13 billion a year at today's prices.

 

The second-largest Russian company by market capitalisation and among the highest earners, Rosneft has in recent years increasingly made attempts to increase its presence in the Indian market, officials said. In early December, Russian President Vladimir Putin said Rosneft had invested $20 billion in India, without elaborating further. Energy ties are set to take priority during Putin's upcoming visit to India, sometime in early December, the Kremlin has said.

 

Russia remains the largest source of crude for India for nearly two years now. As of November, the share of Russian crude in India's imports remained at 38 per cent, slightly down from 39 per cent in October, according to estimates made by London-based commodity data analytics provider Vortexa, which tracks ship movements to estimate imports. Russia's share in India's oil imports is expected to hold at these levels for the foreseeable future, analysts believe.

 

A term deal will reduce the volatility in Russian crude prices and may allow India to have consistent access to Russian oil at lower prices. India is prepared to keep buying oil from Russian companies that are allowed to make such sales, since prices are cheap, Petroleum and Natural Gas Minister Hardeep Singh Puri has repeatedly stressed.