Russia oil discount to India shrinks to $4, delivery charges remain opaque
NEW DELHI: The steep discounts on Russia crude oil that India gorged on since the Ukraine war, have plunged but the shipping rates charged by Russia-arranged entities continues to remain ‘opaque’ and higher than normal sources said.
Russia bills Indian refiners at a price shade less than the $60 per barrel price cap imposed by the West but charges an anything between $11 to $19 per barrel, twice the normal for delivery from the Baltic and Black Sea to the west coast three sources with knowledge of the matter said.
The $11-19 per barrel shipping costs from the Russian ports from the Russian ports to India – some of it on the 100+ tankers reportedly acquired by Russian actors for a shadow fleet – are higher than rates for comparable distances, such as a voyage from the persian Gulf to Rotterdam.
Following Moscow’s invasion of Ukraine in February last year Russian oil was sanctioned and shunned by European buyers and some in Asia, such japan.
This led to Russian Urals crude being traded at a discount to Brent crude (the global benchmark). The discount on Russian Urals grade has however narrowed from levels of around $30 a barrel in the middle of last year to closer to $4 per barrel, sources said.
Indian refiners, who convert crude oil extracted from below ground into finished products such as petrol and diesel, are now the biggest buyers of Russian oil as Chinese imports have maxed out due to a massive electrification of vehicles and demand issues in a shaky economy.
Indian refiners ramped up purchases from less than 2 per cent of their entire buys in pre-Ukraine war times to 44 per cent to capture the discounted oil.
But these discounts have been shrinking as companies such as government-controlled entities like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd as well as private refiners Reliance Indusries Ltd and Nayara Energy ltd continu to negotiate deals with Russia separately.
The discounts could have been higher if state controlled units, who account for roughly 60 per cent of the 2 million barrels per day of Russian oil flowing into India, negotiate together, sources said.
“Chinese demand has maxed out and Europe is not buying any seaborne crude from Russia. So India remains the only destination with increasing appetite. And if they (refiners) negotiated together, bigger discounts could have been extracted,” a source said.
Consider this, IOC is the only company to have entered into a term or fixed volume deal. Other refiners continue to buy on a tender basis.
Before Russia’s invasion of Ukraine in February last year,India was a minor importer of Russian crude, with purchases of about 44,500 barrels per day (bpd) in the 12 months to months to February 2022.
India’s purchases of seaborne crude from Russia have surpassed those by China a couple of month back.Sources said india refiner buy crude oil from Russia on a delivered basis putting the onus on Moscow to arrange for shipping and insurance.
While the invicing for oil is or a shade less than $60 per barrel, the shipping and insurance rate billed is a as per quotes Russia gets from three not-so-well-known agencies which cannot be independently evaluated and remain opaque,they said.
The actual sale price of Urals crude is about $70-75 per barrel, channelling a large protion of Russia oil revenues to the three shadow agencies, they said.
The G7 imposed a $60 per barrel price cap on Russia oil beginning December 2022 to try to limit Moscow’s ability to finance its war in Ukraine.
The price cap meant that companies based in coalition countries to continue providing maritime services for the transport of oil only if that oil is sold at or below the price cap level. Companies based in coalition countries have historically accounted for around 90 per cent of the market for relevant maritime insurance products and reinsurance.
So to get ships and insurance, Russia prices oil in the invoice at USD 60 or less and bills the buyers for shipping and insurance based on quotes it gets from the three agencie sources said.
Until 2022, the Baltic Exchange, a London shipping industry clearinghouse, was quoting two standardised indicators, TD6 and TD17, serving as benchmarks for shipping costs.
But since late 2022, Russian crude is no longer sold in Rotterdam and Augusta and Baltic Exchange has stopped listin TD17 and has modified the TD6 indicator, so it is not necessarily applicable to Russian cargoes.
Also, additional tankers are booked on a time charter basis, which also makes the cost of a single voyage non-transparent.These tankers are not booked through Baltic Exchange shippin brokers, so a dearth of information on the actual costs, the actual costs, they added.
The proportion of Russian oil-loaded ships insured in the EU G7 or Norway was 46.3 per cent in May compared to 78 per cent in February last year. These countries also continue provide tankers to ship Russian oil.
More than 28 per cent of oil tankers that moved Russian oil tankers that moved Russian oil came from the EU, G7 or Norway in May 2023, down from 58 per cent in the pre-war era.UAE-registered tankers make up 37 per cent (13.4 per cent inpre-war era) and 12.3 per cent come from China including Hong Kong. Origin of the remaining 22 per cent is not known
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