Oil Minister H S Puri on Wednesday said there is no reason why domestic refiners should not want to negotiate a “good discount” on a long-term basis with Russia, emphasising that India holds a key card of high crude oil consumption.

The world’s third-largest crude oil importer processed 5.24 million barrels per day (mb/d) on a provisional basis in FY24, compared to 5.13 mb/d in FY23 and 4.85 mb/d in FY22. The country consumes roughly 5 mb/d.

The Minister pointed out that international oil and gas markets are facing uncertainty due to geopolitical conflicts coupled with the tragic helicopter crash and death of Iran’s President Ebrahim Raisi on Sunday.

When asked about Indian refiners forming a cartel to negotiate discounts on crude oil from Russia, Puri said, “I don’t know whether this report is correct or not because many of these are private players.”

On discounts, Puri said: “Why is that any surprise? You are holding one of the most important cards in your hand, which is the market card. Which means that more than 5 mb/d are consumed in India. Why should Indian refiners not want to negotiate a good discount on a long term basis? So, that’s my point. I am upfront. I welcome it. Now, if somebody in the OMCs says let’s get together. I think it is a very good thing.”

Russian discounts

Russia has slashed discounts on crude oil, particularly on Urals, in the past year. Earlier this month, Bharat Petroleum Corporation (BPCL) said that Russian crude oil discounts have almost halved to $3-6 per barrel at present from an average of $8-10 during FY24.

According to ICRA, India saved around $5.1 billion in FY23 and $7.9 billion in 11M FY24 on its oil import bill due to discounts on Russian cargoes.

However, it estimates that the extent of monthly discounts relative to price has narrowed sharply over the fiscal (FY24), to around 8 per cent on an average in September-February FY24 from around 23 per cent in April-August FY24. Consequently, savings related to purchase of Russian crude are likely to have dipped to $2 billion in September-February FY24 from $5.8 billion in April-August FY24.

“With India’s oil import dependency expected to remain high, if the discounts on purchases of Russian crude persist at the prevailing low levels, ICRA expects India’s net oil import bill to widen to $101-104 billion in FY25 from $96.1 billion in FY24, assuming an average crude oil price of $85 per barrel in the fiscal. Additionally, any escalation in the Iran–Israel conflict and an associated rise in crude oil prices could impart an upward pressure on the value of net oil imports in the current fiscal year,” it added.

Oil markets

Prices are not volatile, Puri said, adding, “My understanding is that there is a certain amount of uncertainty. What is the uncertainty? There are two and a half theatres of conflict. There is also talk of some other uncertainty. There has been a tragic incident in one of the oil producing countries. The helicopter crash. Taking all that into account, the oil prices are still holding.”

The Minister explained that despite the fairly substantive production cuts announced by OPEC+ crude oil prices have held.

Analysts said that crude prices have been playing very narrowly, from $82 to $84 per barrel, so far in May. Brent was trading at $81.74 a barrel on Wednesday afternoon.

Explaining the oil market dynamics, Puri said, “In spite of all that, prices have held. I think there are 2-3 reasons. First, all the people invested in this ecosystem think that all the major stakeholders do not want large-scale hostilities. Secondly, the equilibrium between supply and demand is by and large being met. The issue today is different. The issue is how effective is the recovery.”