India Cuts Windfall Tax On Crude Oil And Fuels
India, which introduced a windfall tax on its oil industry last year amid the oil price boom, has now cut the levy for crude oil and the export of jet fuel and diesel, Reuters has reported, citing government information. The windfall tax was introduced in July last year as Indian refiners decided to take advantage of solid margins driven higher by robust demand and the energy supply disruptions in Europe. This advantage took the form of ramped-up oil and fuel exports to sell at higher international prices while domestic prices remained subdued. More recently, however, refiners have been stocking up on cheap Russian crude redirected from Europe, possibly in anticipation of higher demand for fuels in the near future, after the European Union embargoed most imports of Russian fuels. Meanwhile, Reuters’ Clyde Russell reported in a recent column that India and China were both raising their imports of Russian fuels. He cited Kpler data showing that Indian imports of Russian fuel oil had gone up to 4.484 million barrels in January. This was three times as much as India imported on average in 2021 and just a little below the record imports of fuel oil from Russia for October, which stood at 4.88 million barrels. Russell also noted that Chinese refiners could use Russian fuel oil to process into higher-value products as long as the price is low enough to make economic sense. Meanwhile, the Economic Times reported that India may soon boost its imports of Russian gasoline and diesel, in addition to fuel oil. Citing unnamed sources, the report said some refiners planned to buy Russian fuels to sell on the domestic market and export their own products to the West. Domestic demand for fuels may be about to rise further later this year as the government considers a cut in fuel tax as part of efforts to bring inflation under control.
State-run fuel retailers may not immediately revert to daily pricing of two auto fuels
State-run fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have stopped losing money on sales of petrol and diesel, but may not immediately revert to daily pricing of the two auto fuels because of economic and political compulsions, three people aware of the matter said Although international oil prices have softened significantly since their June 2022 peak, these companies do not consider it an appropriate time to restore the daily-pricing mechanism because crude oil prices are volatile, retail inflation is high, and assembly elections are due in crucial states such as Tripura and Karnataka, they added, requesting anonymity. “The fuel price situation has improved significantly as compared to mid-2022. On average OMCs (oil marketing companies) now have positive margins. That is why the Budget has also reduced LPG [liquefied petroleum gas or cooking gas] subsidy for 2023-24. Petrol and diesel are deregulated products and oil companies are free to adjust their retail prices accordingly. There is no provision in the Budget to help oil PSUs for their losses on petrol and diesel,” one of the three, a senior government official, said Budget 2023-24 proposed a ₹22.5709 billion LPG subsidy, 61% lower than ₹58.1250 billion Budget Estimate (BE) for 2022-23, which was later raised to ₹9170.50 in the revised budget (RE) of FY23. Apart from that, the government gave a one-time grant of ₹220 billion to state-run oil marketing companies (OMCs) for their revenue losses on the sale of cooking gas in RE of FY23. State-run OMCs have not changed pump prices of petrol and diesel since April 6, 2022, when they were last raised to ₹105.41 per litre and ₹96.67 a litre respectively in Delhi. In May 2022 the Central government steeply reduced excise duty on petrol and diesel for the second time (the first reduction took place in November 2021; total central excise reduction was ₹13 a litre and ₹16 on the two fuels, respectively) to calm raising inflation. This was also followed by cuts in value-added taxes by several states. Consequently, petrol and diesel rates came down to ₹96.72 per litre and ₹89.62, respectively, in Delhi on May 22, 2022. Fuel rates vary across the country due to local levies.
Russia price caps spur India interest in naphtha, fuel oil, but not diesel
More Indian firms are attracted to buying Russian naphtha as low-cost feedstock for their refineries and petrochemical plants after price caps imposed by Western nations, six refining sources said. Prices for refined products such as naphtha and fuel oil are capped at $45 a barrel by the Group of Seven nations, the European Union, and Australia in a scheme aimed at curbing Moscow funding its war against Ukraine. By comparison, Singapore naphtha traded at $80.03 a barrel on Tuesday on a free on board basis. The price cap was implemented along with an EU ban on Russian oil products imports on Feb. 5. India’s interest in ramping up Russian oil products imports comes after the world’s third largest crude importer became Moscow’s top oil client after China as the West shunned supplies from Moscow. Cheap Russian crude has shaved costs at Indian refiners and boosted margins. Reliance Industries Ltd. (RELI.NS), the owner of the largest refining complex in the world, boosted its imports of Russian naphtha imports in February to about 222,000 tonnes, ship tracking data from Refinitiv showed. Reliance began importing Russian naphtha in September and by the end of January had shipped in about 217,000 tonnes, the data showed. Reliance, already India’s largest buyer of Russian naphtha and fuel oil, would consider increasing imports further, one of the sources said. Its Russian fuel oil imports are set to triple a record of around 4.8 million tonnes between April 2022 and Feb. 2023, the first 11 months of this financial year, from about 1.6 million tonnes in 2021/22, Refinitiv Eikon data showed. State-owned refiners Bharat Petroleum Corp. (BPCL.NS) and Indian Oil Corp. (IOC.NS), which have petrochemical facilities, are also looking for opportunities to buy Russian naphtha, sources said. “So far there is no offer made to us for Russian oil. It is early days… we will definitely buy Russian naphtha if we get it at cheaper rate,” said an official at one of the state refiners. Haldia Petrochemicals Ltd would also consider buying Russian naphtha if the quality and cost are suitable for its plants, two sources at the company said. Reliance, IOC, BPCL and Haldia Petrochemicals did not respond to Reuters’ emails seeking comment. The G7 price caps prohibit Western insurance, shipping and other companies from financing, insuring, trading, brokering or carrying cargoes of Russian crude and oil products unless they were bought at or below the set price caps. NOT DIESEL However, Indian refiners are unlikely to purchase Russian diesel as import costs are high after adding $10–$15 per barrel in freight and insurance costs to the $100 price cap for the fuel. Asia’s benchmark 10-ppm sulphur gasoil prices were at $110.57 a barrel on Tuesday. There is also a windfall tax on diesel exports which makes re-exports uneconomical. “As there is no shortage of diesel in India, any diesel imports from Russia will boost India’s exports, and exports will be charged with the windfall tax,” one refinery executive said. Unlike naphtha that is imported by some refiners and petrochemical makers, India is self-sufficient in diesel production as most refiners are traditionally geared to maximise gasoil output. “Due to its proximity to both Russia and Europe, we believe the Middle East is the best region for Russian diesel imports,” the refinery executive said.