Union Oil Minister Hardeep Singh Puri announced on Wednesday that the Indian government is considering a long-term oil supply agreement with Russia at a fixed discount.
This move, which involves a consortium of Indian state-owned refiners and Reliance Industries, aims to stabilise the country’s oil supply and shield the economy from price volatility as domestic oil demand continues to surge. Since the onset of the Ukraine conflict, Russia has become a significant supplier of crude oil to India, leveraging substantial discounts to attract buyers. According to a recent Bloomberg report, the Indian government is advocating for its refiners to secure at least one-third of their contracted oil supply from Russia at a fixed discount, ensuring a more predictable and stable pricing structure. Initially, Russian crude was available at discounts ranging from $8 to $10 per barrel. However, tighter enforcement of US sanctions on certain vessels has reduced this discount to approximately $3 to $4 per barrel. Most Russian oil supplies to India are currently transacted on a spot basis rather than through long-term contracts. Despite these challenges, the industry anticipates that supplies will remain stable, provided no new geopolitical tensions arise.
Indian Oil Corporation (IOC) was previously the only refiner with a long-term supply agreement with Russia, which expired at the end of March and has yet to be renewed. Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) typically purchase Russian crude on a spot basis. India’s consumption of petroleum products, including gasoline, diesel, and jet fuel, increased to 19.9 million tonnes in April, up from 18.7 million tonnes in the same period last fiscal year, according to data from the Petroleum Planning and Analysis Cell. Crude oil imports also rose by 7% year-on-year to 21.4 million tonnes. Minister Puri also commented on the current stability of oil prices amidst global market uncertainties. He noted that oil prices have remained steady despite production cuts announced by OPEC+. Puri referenced the recent death of Iran’s President Ebrahim Raisi in a helicopter crash, acknowledging the potential for market instability but maintaining that the equilibrium between supply and demand is largely being met.
The proposed fixed-discount deal with Russia reflects India’s strategic efforts to secure a reliable and cost-effective oil supply amidst fluctuating global market conditions. This initiative underscores the government’s proactive approach to managing the nation’s energy security and economic stability.
“Over 5 million barrels per day of crude oil is consumed in India. Why should Indian refiner not want to negotiate a good discount on a long-term basis. I welcome it,” Puri said. “Discounts depend on consignment to consignment. Generally, we procure on spot basis, two months in advance. Last year, we used to get around $8-10 per barrel. Maybe now it will be around $3-4 or $3-6 per barrel range,” Bharat Petroleum Corporation’s (BPCL) senior management had earlier said.
