India still relies on Russian oil, but increasingly on the spot market
7 May 13:03
Some Indian refiners are planning to buy more Russian oil on the spot market this year, "Komersant Ukrainian" reports, citing Bloomberg. At least one refiner is looking to amend contractual provisions to provide more flexibility in purchases.
Indian Oil Corp, the country’s largest oil refiner, plans to increase the share of Russian oil to a quarter of its total supply. At the same time, Bharat Petroleum Corp. intends to increase the share of Russian crude in its refining to about a third. The companies’ executives made these statements during recent conference calls on their quarterly financial results.
India has become a major consumer of Russian oil since the invasion of Ukraine, actively buying discounted barrels that other buyers were turning down. According to Hindustan Petroleum Corp. CEO Vikas Kaushal, last year, oil from Russia accounted for 35% of the company’s total refining volume. However, the company did not provide any information on future plans.
Indian Oil will reduce the share of oil it receives from its regular suppliers to 55% in the current fiscal year, which began on April 1, compared to 60% in the previous year, CFO Anuj Jain told reporters on April 30. The remaining volume is to be purchased on the spot market.
Although the refiner plans to increase the volume of Russian crude to 25% of total supplies this year, up from 22% previously, this share is still below the historical high of about one-third recorded just after the start of the war in Ukraine.
Meanwhile, BPCL is seeking to include so-called “destination-free” clauses for some of the cargo it buys under long-term contracts with Middle Eastern suppliers, according to people with knowledge of the situation. This will allow the company to sell or exchange barrels with other buyers.
However, discounts on Russian crude have recently declined as buyers from other regions, including Turkey and Syria, increase purchases. According to Chennai Petroleum Corp., last quarter the discount was less than USD 1 per barrel compared to benchmark prices, while last year it reached USD 3-4.
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Why the spot market?
The spot oil market is a trading platform where oil is bought and sold with immediate or almost immediate delivery (usually within 1-2 months) at current market prices. In contrast to the futures market or long-term contracts, where the terms are fixed in advance for a long period of time, spot transactions involve prompt delivery at prices that reflect the current balance of supply and demand. This allows buyers to respond quickly to price fluctuations, take advantage of temporary discounts and optimize their procurement strategy to meet current processing needs.
The spot market is also characterized by higher price volatility compared to long-term contracts, but in the face of geopolitical uncertainty and sanctions restrictions, it is becoming an attractive tool for countries seeking to maximize their own economic benefits, as India does with Russian oil.
India is one of the countries that maximizes the benefits of not joining the anti-Russian sanctions. During the years of the full-scale war in Ukraine, it has overtaken China to become the largest buyer of Russian oil. The amount of oil that India buys from Russia has increased from statistically insignificant levels in the 2021-2022 fiscal year to more than 1.5 million barrels per day in 2023-2024, which is one third of all oil purchased by the country. India also cooperates with Russia in military-technical terms.
Today, India prefers the spot market for purchasing Russian oil for several strategic reasons. The spot market allows Indian companies to use more flexibility in setting prices and supply volumes, which is especially important in the context of dynamic changes in the global oil market after the outbreak of the war in Ukraine. When Western buyers refused to buy Russian oil, this led to a significant discount on these barrels, and the spot market allows Indian refiners to quickly take advantage of these pricing opportunities without long-term commitments.
In addition, reducing the share of long-term contracts in favor of spot purchases (as in the case of Indian Oil – from 60% to 55%) gives India the opportunity to diversify suppliers and reduce dependence on traditional partners from the Middle East. This is an important geopolitical step to ensure the country’s energy security. It is worth noting that BPCL’s request to include “free destination” clauses in the contracts also indicates a desire to create a more flexible system where the company can resell or exchange oil depending on market conditions. In fact, Indian oil refiners are balancing long-term supply stability with the ability to benefit from short-term price fluctuations, which is especially relevant in the context of a gradual reduction in the discount on Russian oil (from $3-4 to less than $1 per barrel).
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