India’s IOC looks to broaden crude sources as Russian discounts narrow

Indian Oil Corp. is shifting to other crude sources to feed its refineries as the steep discounts for Russian oil available over the past year-and-a-half have dwindled in recent months, the state-owned company’s chairperson Shrikant Vaidya told S&P Global Commodity Insights in an interview.

“We have been always saying that we will go for the cheapest oil that the country gets, because we have a commitment to our consumers to get the cheapest price. So, I think we will go to the other sources of oil, as simple as that,” Vaidya said.

India’s imports of Russian crude were negligible prior to 2022 but started to pick up rapidly following the invasion of Ukraine, as Indian refiners cashed in on the resulting steeply discounted prices for Russian oil. Imports from Russia surged to as high as 2 million b/d from April to July 2023, according to S&P Global Commodities at Sea data, but have eased back to 1.4 million b/d in August and 1.6 million b/d in September.

Russia has remained the top supplier of crude to India through the first nine months of 2023, but Middle Eastern crudes from Iraq and Saudi Arabia as well as other sources have regained some ground recently. Prior to the invasion of Ukraine, Iraq was India’s primary supplier of crude, and CAS data suggests it will regain top spot in October.

“Today, we have about 236 grades of crude in my crude basket. So I think there is a world out there offering us a lot of oil,” Vaidya said.

In the wake of Russia’s invasion of Ukraine, steep discounts of as much as $42/b to benchmark Brent crude for Urals made it attractive to price-sensitive buyers such as India. However, the discounts for Russian crude have been shrinking over recent months as Russia sources more non-G7 shipping capacity to sidestep the G7’s $60/b price cap on its exports, while values for medium sour crudes continue to strengthen globally on the back of OPEC+ production cuts.

Urals crude delivered to India’s west coast priced against Forward Dated Brent narrowed to a $4.70/b discount on Sept. 18, the tightest spread since Platts began assessing the differential at $19/b on Jan. 18.

High oil prices

Vaidya noted that high oil prices posed “the threat of recession” for the global economy and said that IOC would like to see more supply on the market so prices “that are on the boil” come down.

Platts-assessed Dated Brent is up 8.6% year to date, although the benchmark eased last week falling 0.32% to $88.2/b on Oct. 6. ICE Brent futures however rallied at opening on Oct. 9, rising 4.24% to trade at $88.17/b, following Israel’s declaration of war after the deadliest attack on its population by terror group Hamas.

India, the world’s third-largest buyer of crude, depends on imports to meet up to 88% of its needs, with high prices hitting consumers who are already burdened with domestic taxes.

New Delhi recently increased windfall taxes on crude from $120.37/mt to $145.65/mt amid high oil prices. The taxes will impact domestically produced crude and products made for export.

Vaidya declined to comment on the impact of higher windfall takes on IOC’s profitability and business strategy.

Local currency transactions

IOC has also “started the process” to adopt more local currencies in settling crude transactions, Vaidya said. IOC paid in rupees for a million barrels of oil bought from the UAE in August, the Indian Embassy in the Gulf state said at the time.

India has been pushing for more transactions in rupees. The extension of membership to the BRICS group of nations to the UAE and Saudi Arabia in August has also given a fillip to Indian efforts to get producers to accept rupees for oil purchases.

“As an Indian I would certainly like to see [more of it],” Vaidya said.

West coast refinery

India’s planned 60 million mt/year (1.2 million b/d) Ratnagiri refining and petrochemicals complex, which is being jointly developed by Abu Dhabi National Oil Company, Saudi Aramco and state oil refiners including IOC, is still in the land acquisition stage, Vaidya said.

“We are waiting for the land. We have already done some land assessment. Soil survey is also done. We are waiting for the report and once the land is available from the government of Maharashtra, I think we should take advantage of it,” Vaidya added.

The refinery will be built in phases, with each stage adding 20 million mt/year, Vaidya told S&P Global previously.
Source: platts