India saved over Rs 35,000 crore with discounted Russian crude, may continue buying: Experts

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India has saved thousands of crores of rupees buying discounted Russian crude oil and also saved on the outflow of dollars at a time when the local currency has been weak. Even as geopolitical pressure intensified against Russia after it attacked Ukraine, India has made it clear that it will give its own energy needs priority and continue to buy oil from Russia.

According to industry estimates, India is estimated to have saved over Rs 35,000 crore by importing cheap Russian crude since February. Russia began diverting oil supplies from its traditional markets to countries in Asia after Europe — its largest market — imposed sanctions on Moscow. India and China have become the largest buyers of Russian oil, benefiting from the discounted oil supplied by Russia.

“In the last financial year, Russia accounted for only 2 percent of the overall crude oil import basket for India. Whereas, in the first half of FY23, of the total oil imports of 20 million tonnes, 16 percent was from Russia, which is roughly around 3.2 million tonnes,” said Hetal Gandhi, Director-Research, Crisil.

According to market analytics data from Vortexa, Russia was the top supplier of oil to India in November for the second consecutive month as the country bought 909,400 barrels per day (bpd) from Russia.

In November, India bought about 40 percent of all seaborne Russian Urals oil, higher than any other state, showed Reuters calculations, based on Refinitiv and traders’ data.

The supply of crude oil from Russia peaked in June with a gradual decrease in the following months.

China, the second largest consumer of oil in the world, has also been buying oil at a discounted price from Russia. Chinese President Xi Jinping recently said that China is willing to work with Russia to forge a closer energy partnership.

Discounted oilWhile the West expects India to join it in imposing a price cap on Russian oil, Moscow has been offering discounts on oil supplies to India.

In May, India bought Russian oil at a discount of $16 a barrel. The discount, though, has reduced and was at $14 a barrel in June, $12 a barrel in July, and $6 a barrel in August.

“There have been discounts provided by Russian suppliers and the discounts could be in the range of 30-40 percent. However, there have been higher logistics and insurance costs to Russian oil, which has made the overall benefit of these discounts a little lower,” said Gandhi.

“If you compare the overall import realisation versus the realisation of crude that is being imported from Russia, you will see a difference of about 8-10 percent. This means that the overall import realisation for the first half was around $105, whereas the realisation of the 16 percent import from Russia, at around $96 a barrel, is a benefit of around 8 percent below the overall cost,” she added.

Sanctions imposed by G7 on Russia

The G7 countries imposed a price cap of $60 per barrel on Russian oil from December 5 to hamper Russia’s largest source of income while also allowing its oil into the market to limit the impact on global prices.

According to the G7 decision, companies providing transportation services, such as shipping and insurance, can only handle Russian cargo if oil is purchased below or at the price cap. The decision could impact oil exports from Russia as the world’s key shipping and insurance firms are based in the G7 countries.

“India is already buying around 800,000- 900,000 barrels per day (from Russia), which is already 20 percent of total imports. It is unlikely that India will increase the volume of Russian imports as it may not work given the configuration of Indian refineries. It is also unlikely that the G7 price cap on Russian crude will have any significant impact on India’s imports from the country. The discounted price at which Russia is selling to India translates into a realisation for the country close to the $60 cap,” Debasish Mishra, partner and leader (energy) at Deloitte India, told Moneycontrol on December 7.

Despite the price cap by the G7, Russia, the second largest producer of crude oil in the world, has been firm in its decision to not provide oil to countries that agree with the price cap, even if that means cutting production.

India’s response to the price cap

For the price cap imposed by G7 to be successful, it is important that even India and China abide by the ceiling.

Union Minister for Petroleum and Natural Gas Hardeep Singh Puri has said on more than one occasion that India will examine the prospect of a price cap on Russian oil and will respond according to its supreme national interest.

The minister has also said that there was no moral conflict in buying Russian oil, whereas the government has a moral duty to consumers to ensure they are supplied with energy.

Dilip Parmar, Research Analyst, HDFC Securities, citing Minister Puri, said the government has made it clear that it will buy oil from wherever it has to. And that sends a clear message, that the country is not worried about supply.“From an Indian perspective, it (the price cap) doesn’t impact us as the country is sourcing oil from 39 countries, and before the Russia-Ukraine war, we purchased a negligible amount of Russian oil. The short-term for Brent crude oil will be bearish as long as it trades below $97.50/a barrel. On the downside, it might hold support at $65/a barrel,” Parmar added.

Source: Money Control