Indian refiners are getting crude at high premiums, a contrast to the situation a few weeks ago when global oil prices had dropped. In fact, the price that Indian refiners are paying for crude is increasing more rapidly than global benchmarks.This is because tighter physical supplies have pushed up premiums for oil barrels from the Gulf and West Africa. At the same time, discounts on Russian crude have disappeared, while the price advantage on Venezuelan oil has narrowed considerably.Brent futures have risen by around $10 a barrel over the past two weeks, moving above $91 a barrel on Tuesday.
Physical crude markets under pressure
Physical crude markets are under greater pressure which has strengthened the bargaining position of suppliers and forced Indian refiners to increasingly turn to expensive spot purchases to secure Gulf supplies.Also Read | How long can the world & India absorb the US-Iran war oil shock?“Every trader is asking for a premium,” a refinery executive told ET. Gulf suppliers, for example, are seeking premiums of $3-4 a barrel over the Dubai-Oman benchmark, which itself is trading at a premium of $6-7 a barrel to Brent, the executive said.As a result, the effective price of Gulf crude for Indian refiners is around $10 a barrel higher than Brent, the executive added.Saudi Aramco’s official selling prices for its various crude grades, which are $1.5-3 a barrel below Dubai-Oman, are offering limited relief. Disruptions in the Red Sea and Strait of Hormuz have reduced the availability of crude under term contracts, industry executives said.Indian refiners are therefore relying more heavily on the spot market to buy Gulf crude, where traders, including the trading divisions of Gulf national oil companies, are seeking additional premiums.Industry executives said these traders are assuming greater risks to transport cargoes through the troubled waterways. In some cases, they are using dark fleets and ship-to-ship transfers, with the additional risks reflected in the premiums being demanded.Term-contract crude is supplied on a free-on-board (FOB) basis, but the number of vessels prepared to enter ports in the conflict-affected region is too small, the executives said.West African crude, which is also an important source for Indian refiners, has seen its premiums rise as well.“West African grades appear increasingly unviable,” said another executive.To compensate for the reduced availability of Gulf crude and steer clear of increasingly costly West African barrels, Indian refiners are seeking additional supplies from more distant producers, including the US, Brazil and Guyana.
Russian crude still in focus
Despite the changing market conditions, Russian crude continues to be the primary source for deliveries through September.The situation is markedly different from early July, when Brent spot prices dropped below $70 a barrel following the implementation of a US-Iran truce. At that time, crude that had been stranded in the Persian Gulf entered the international market, easing concerns over supply. By last week, however, Brent spot prices had climbed above $93 a barrel.The surge in available crude following the temporary truce had also increased the discounts offered on Russian and Venezuelan oil. Since then, the discount on Russian crude has largely disappeared, while the price reduction on Venezuelan barrels has narrowed substantially, according to executives. The 60-day truce ended on Monday.Indian refiners could face additional difficulties in securing crude if the US further tightens sanctions on buyers of Russian oil, industry executives said. The US Senate recently passed legislation that seeks to impose tariffs of as much as 100% on India, China and other countries purchasing Russian crude. Such action could put additional pressure on global supplies and drive oil prices higher.
