Introduction:
Indian state-run refiner Bharat Petroleum Corp Ltd (BPCL) is currently in talks with Rosneft, exploring the possibility of procuring approximately 6 million metric tons (43.8 million barrels) of discounted Russian crude oil priced on the Dubai benchmark. This potential deal reflects India's strengthened commitment to its primary oil supplier amidst Western sanctions on Moscow. By aligning with the Middle Eastern benchmark commonly used in Asia, Rosneft continues to shift its oil pricing strategy away from the Europe-dominated Brent benchmark.
Deal Details:
Under the proposed agreement, Rosneft plans to supply BPCL with the equivalent of 6 to 7 cargoes, consisting of approximately 700,000 to 720,000 barrels each per month until March 2024. The sources, who chose to remain anonymous as they lacked authorization to speak to the media, divulged these details.
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Advancing Negotiations:
The negotiation process for the contract has progressed to an advanced stage, with both parties ironing out essential aspects such as payment terms. However, neither BPCL nor Rosneft has provided an official comment on the matter.
Impact on Russian Oil Imports:
Should the deal materialize, it would contribute to a further increase in the proportion of Russian oil flowing into India, solidifying Russia's position as the country's largest oil supplier. This shift has occurred due to Russia diverting its supplies away from Europe, which had previously been the primary destination for its oil.
Reasons for the Shift:
Indian refiners, who historically made limited purchases of Russian oil due to higher transportation costs, are now seizing the opportunity to acquire discounted crude following reduced Western demand resulting from the Ukraine conflict. European Union nations ceased buying Russian oil on December 5th, and the Group of Seven (G7) countries implemented a price cap of $60 per barrel on Russian crude to curtail Moscow's revenue.
Pricing and Discounts:
If the agreement is finalized, the Russian crude sold to BPCL will be priced at a discount of $8 per barrel in relation to the Dubai benchmark. Similarly, in April, Indian Oil Corp, the country's leading refiner, struck a deal with Rosneft to purchase up to 1.5 million metric tons of oil per month at a discount of $8 to $10 per barrel, benchmarked against the Middle East standard.
Benchmark Considerations:
Rosneft's gradual transition from the Brent benchmark to the Dubai benchmark can be attributed to the significant shift in Russian oil sales towards Asia following reduced European purchases. Both benchmarks, denominated in dollars, are established by S&P Global Platts, a division of U.S.-based S&P Global Inc. The Dubai benchmark primarily reflects the Asian and Middle Eastern oil trading dynamics, while Brent is predominantly used to price crude originating from Europe, Africa, and South America.
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Diversifying Market Focus:
Russia has been redirecting its energy supplies from traditional European markets to Asia, particularly India and China, in response to the extensive sanctions imposed by the West, including a seaborne Russian oil import embargo.
Oil Grades and Imports:
BPCL, like other Indian refiners, typically engages in spot purchases of Russian oil, predominantly through traders. In this potential new contract, BPCL aims to import various Russian oil grades, including Sokol, Varandey, and Urals.
Conclusion:
BPCL's ongoing discussions with Rosneft to procure Dubai-benchmarked crude oil signify a deepening commitment to Russia as its primary oil supplier amid geopolitical challenges. This strategic move reinforces the growing importance of the Asia market for both Rosneft and Russia as a whole, while offering BPCL a valuable opportunity to diversify its oil imports.
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