Saudi cuts Asian Premium after India taps Russian oil

Saudi Arabia, the world’s second largest oil producer, has slashed the premium charged on exports to India while many others have discontinued it altogether, a person aware of the matter said, after India began sourcing the bulk of its energy requirements from Russia.

Asian premium is an extra amount levied by the Organization of the Petroleum Exporting Countries (Opec) from Asian countries above the actual selling price. India has repeatedly pressed oil producers to eliminate this premium and even asked for an ‘Asian discount’ instead. Saudi Arabia has now reduced the premium to $3.5 per barrel from around $10 in the past year, the person said.

“Some suppliers are giving discounts; some are charging a premium, and you buy less from them. Currently, the premium is $3.5 per barrel. Saudi is levying the premium on the OSP (oil selling price). The United Arab Emirates (UAE) is not charging,” the person said on condition of anonymity.

“Imports have already declined. Both the public and private sector will buy oil from wherever they get it cheapest,” the person added.

Top Asian buyers China and India, the second and third largest importers of crude oil globally, boosted imports from Russia after the country offered deep discounts following its war in Ukraine. In the first quarter of 2023-24, oil imports from Russia stood at $12.36 billion, 171% higher from a year earlier, while Saudi Arabia slipped to the third position as supplies declined 24% to $5.49 billion. Imports from the UAE slumped 63% to $1.71 billion.

Iraq, which has offered discounts as well, was the second largest supplier in value terms at $6.55 billion. The supplies, however, still declined by 38%.

In July, a report by S&P Global Commodity Insights said Russia and the Middle East would each take a 40-45% share in the third quarter of 2023. Opec, which includes all major Middle Eastern oil-producing countries, constituted around 75% of India’s import basket in 2022.

In the past few months, Russia’s discounts have narrowed, and along with Saudi Arabia, it has extended output cuts, squeezing supplies. International Energy Agency’s (IEA) oil market report for September 2023 showed that Russia’s daily production stood at the same level in August as in July at 9.48 barrels per day (bpd), and that of Saudi Arabia declined from 9.08 bpd in July to 8.98 bpd.

The report showed that despite declining shipments in April and May to India and China, they accounted for more than half the total oil export volumes of Russia.
“The decline may be on the back of the large market both India and China provide. Nobody would want to lose these two countries as they have a large market share,” said Prashant Vashisht, vice president of Corporate Ratings, Icra.
The IEA report said despite a tough economy, China looks on track to account for 75% of the increase in world oil demand this year or 1.6 million barrels of the total anticipated global demand of 2.2 million barrels.

India witnessed a record 222.94 million tonne consumption of petroleum production in 2021-22, and according to the estimates of the Petroleum Planning and Analysis Cell, it may touch 233.80 million tonnes in 2022-23. About 85% of India’s total energy requirement is met through imports.

Amid volatile market conditions in the past 18 months and Opec’s persistent efforts to raise prices through output cuts, India has been looking at diversifying import sources and securing cheaper oil.

Queries sent to the spokespeople for the ministry of petroleum and natural gas, the embassy of Saudi Arabia, India’s state-run oil refiners, Reliance Industries Ltd and Nayara Energy remained unanswered till press time. Saudi state-run oil major Aramco declined to comment.
Source: Livemint