India confident of continuing discounts on Iraqi and Saudi crude oil

Share of imports from traditional middle eastern share has crept up even as Russian oil dominates

India has secured commitments from West Asian crude oil sellers such as Saudi Arabia and Iraq to continue the higher levels of discounts they began in June, multiple sources said.

As crude oil prices remain within striking distance of $100 per barrel, shipments from Saudi Arabia and Iraq have strengthened since July owing to discounts and a reduction in the Asian premium, the extra amount levied by the Organization of the Petroleum Exporting Countries (Opec) on sales to Asian countries.

As of September, the share of Russian crude oil in India’s imports remained at 38 per cent, less than its historic high of 42 per cent, which is shown by estimates of London-based commodity data analytics provider Vortexa.

This has happened even as the share of Saudi Arabia and Iraq crept up in recent months.

“The discounts from Iraq and the removal of the Asian premium by Saudi Arabia are expected to stay for the near term,” a senior official said.

Last year, Baghdad had undercut Russia from June by supplying a range of crude oils that, on average, cost $9 a barrel less than the Russian oil.

The extremely price-sensitive market, therefore, had shifted heavily back in favour of Iraq. This had continued till the G7 nations had imposed a $60 per barrel price cap on Russian crude oil on December 5, 2022. This was implemented concurrently with a separate ban on Russian seaborne crude oil shipments by countries of the European Union.

Subsequently, Moscow had offered more competitive prices to retain a steady flow to new buyers like India and China to make up for the lost volumes, which were earlier going to Europe.

“That trend has continued since with various levels of discounts, from $30 per barrel to the lows of $4 per barrel. Discounts had picked up since July, and they are expected to continue for the time being,” an industry insider said. The level of discounts hovered at $5-7 per barrel in August.

Russia remains the largest source of crude oil for India for more than a year. In September, imports from Russia stood at 1.52 million barrels per day (bpd), up from the 1.44 million bpd in August, the Vortexa data showed. Imports, however, remain lower than the 1.92 million bpd registered in July and the record high of 2.12 million bpd in June.

Indian refiners had bought Russian oil at around $80 per barrel, sources added, and that Moscow will not change terms by a wide margin at a time when it is pressed for cash. But the level of discounts will be lower in 2023 because China snapped up larger volumes of Russian crude oil in the first half of the year.

Since April, 50 per cent of the Russian oil sold to India has been on the Dubai benchmark, with an average discount level of $8-10 per barrel.

Crude oil prices dip

On Wednesday, Saudi Arabia and Russia announced they would continue existing production cuts till the end of the year. Saudi Arabia is implementing production cuts of 1 million barrels per day (bpd) while Russia has instituted a voluntary export cut of 300,000 bpd.

The announcement was widely expected to further push up oil prices, which have traded at above $90 per barrel since early-September. However, a bleaker macroeconomic outlook and fears over lower industrial demand from the US have instead led to a fall in Brent crude prices to $89.2 on Wednesday at the time of writing this report.

The finished motor gasoline supplied, a proxy for demand, fell last week to about 8 million bpd, the US Energy Information Administration (EIA) reported on Wednesday, Reuters reported. This is the lowest level it has reached in the current year.