India imports $12.4 billion worth of crude from Russia but discounts are waning

• India was enjoying a discount of $12.6/bbl from Russian imports in Q1 of FY23, which came down to $8.8/bbl in Q1FY24.
• Russia is going for voluntary cuts to ensure the “oil market remains balanced”.
• Oil cartel OPEC+ has curbed output but it has been going up in Iran and the US.

India has been enjoying the discounted crude oil from Russia for over a year now. But the discount that India seems to be enjoying is coming down even as Russia remains one of its biggest suppliers as it imported crude to the tune of $12.4 billion in Q1FY24.

“This year, in Q1FY24, while India continues to import crude oil at discounted rate from Russia compared with other countries; the premium has actually gone down relative to last year,” says Jahnavi Prabhakar, economist at Bank of Baroda.

In the April-June quarter of FY23, the premium that India enjoyed from Russian crude – that’s the difference between international prices and Russian supply — was at $12.6 per barrel. In the same quarter this year, it has come down to $8.8 per barrel.

Russia also announced in early August that it’s planning to cut crude oil production by 300,000 barrels per day. Prime Minister Alexander Novak had said that the country is going in for voluntary cuts to ensure the “oil market remains balanced”. It will also cut its exports by that quantity, he added.

This is in addition to a pledge to reduce its oil output by around 500,000 barrels per day, or some 5% of its oil production, from March to the end of the year.

Falling discounts
Source: Bank of Baroda

The 3x jump in Russian imports

In spite of the changing discounts, Russia has turned one of India’s largest suppliers over the last one year. India is one of the world’s top importers of crude oil thanks to its high demand and a large population.

In Q1FY23, Iraq was one India’s top suppliers — and has imported over $10.8 billion worth of crude oil from the country. Back then, India’s crude bill to Russia was around $4.6 billion.

Now, thanks to its discounted offerings, Russia became the most important source for import of crude oil. In Q1 FY24, the figure now stands at $12.4 billion — which is thrice of what it was last year.

“In Q1FY24, the average price of international crude oil stands at $77.7/bbl. During this period, UAE and Saudi Arabia have been able to provide crude oil at much higher rates of $86/bbl and $85/bbl respectively. Notably, Russia has been providing crude oil at much discounted rates than its global counterparts at $69/bbl,” says Prabhakar.

Crude under pressure

On the other hand, the crude oil dynamics have also undergone many changes — with uncertainty of Chinese demand, slow growth across the world, recession in Europe and more.

In June, Saudi Arabia the kingpin of oil cartel OPEC+ consisting of 13 oil producing nations – decided to go in for another round of production cuts – by 1.6 barrels per day. They came to this decision after the earlier round of production cuts did not produce the necessary effects.

Experts expect oil prices to remain under pressure in the short term due to changing production dynamics.

“Oil prices have surged above $80 per bbl recently after OPEC+ curbed the output. US waterborne crude exports this month are set to hit the highest since March amid lower exports from the Middle East. At the same time, oil output is rising elsewhere. Exports from Iran surged to 2.2 mbpd in August, US output surged to 12.7 mbpd last week,” said Ravindra Rao, VP – head commodity research at Kotak Securities.