India considers buying discounted Russian oil, commodities, officials say
India is considering taking up a Russian offer to buy its crude oil and other commodities at discounted prices with payment via a rupee-rouble transaction, two Indian officials said, amid tough Western sanctions on Russia over its invasion of Ukraine. India, which imports 80% of its oil needs, usually buys about 2% to 3% of its supplies from Russia. But with oil prices up 40% so far this year, the government is looking at increasing this if it can help reduce its rising energy bill. “Russia is offering oil and other commodities at a heavy discount. We will be happy to take that. We have some issues like tanker, insurance cover and oil blends to be resolved. Once we have that we will take the discount offer,” one of the Indian government officials said. Some international traders have been avoiding Russian oil to avoid becoming entangled in sanctions, but the Indian official said sanctions did not prevent India importing the fuel. Work was ongoing to set up a rupee-rouble trade mechanism to be used to pay for oil and other goods, the official said. The officials, who both declined to be identified, did not say how much oil was on offer or what the discount was. The finance ministry did not immediately reply to an email seeking comments. Russia has urged what it describes as friendly nations to maintain trade and investment ties. India has longstanding defence ties with Russia and abstained from a vote at the United Nations condemning the invasion, although New Delhi has called for an end to the violence. Russia’s Surgutneftegaz allowed Chinese buyers to receive oil without providing letters of credit (LC) payment guarantees in order to bypass sanctions, sources told Reuters. The Indian government, which could see its import bill rise by $50 billion in the fiscal year starting in April, is also looking for cheaper raw materials from Russia and Belarus for fertiliser, as the cost of its subsidy programme has rocketed. The government, which has already doubled its subsidy bill for the fiscal year to the end of March 31, allocated a further 149 billion Indian rupees ($1.94 billion) on Monday. The government expects the fertiliser subsidy bill to rise by at least 200 billion to 300 billion rupees in the next financial year, from the current estimate of 1.05 trillion rupees, the two officials said. “If we can get cheaper fertiliser from Russia then we will take that. It would help in easing some fiscal concerns,” one official said.
Reluctance To Buy Russian Crude Could Cause Long-Term Output Problems
A few days ago, Moscow made good on its threat to weaponize its energy exports in retaliation for Western sanctions by imposing wide-ranging export bans. Alexander Novak, Russia’s deputy prime minister, says his government has the “full right” to “impose an embargo” on gas supplies by halting gas supplies through the Nord Stream 1 pipeline with U.S. and European officials mulling a ban on Russian oil and gas imports. Novak says it would take Europe more than a year to replace the volume of oil it receives from Russia and added that Russia “knows where we could redirect the volumes to. Well, the last part is not an accurate assessment of the situation. According to estimates by Standard Chartered commodity analysts, Russia will soon be forced to start shutting-in oil production as it will be unable to sell all the oil displaced from European markets in other regions. StanChart says continuing consumer reluctance to buy from Russia and shortages of capital, equipment, and technology will continue to depress Russian output over, at least, the next three years. The commodity experts have predicted that Russia’s output will fall by 1.612 million barrels per day (mb/d) y/y in 2022 and a further 0.217mb/d in 2023, with the y/y decline peaking at 2.306mb/d in Q2-2022. Oil prices and energy stocks are trading at multi-year highs after international refiners adopted a self-imposed embargo, with many reluctant to buy Russian oil and banks refusing to finance shipments of Russian raw materials. Refiners and banks are unwilling to do business with Russia due to the risk of falling under complex restrictions in different jurisdictions. Market participants are also concerned about measures directly targeting oil exports. Big Supply Deficit Russia’s difficulty in marketing its oil is likely to open up a significant supply deficit. StanChart says that rebalancing the oil markets would require around 2mb/d extra supply for the remainder of 2022, mainly due to the current very low inventory levels, and an additional 2mb/d in Q2 to ease the dislocations caused by the displacement of Russian oil. StanChart’s model assumes that the current OPEC+ deal continues, no increase in Iran’s exports and U.S. output growth Y/Y is just over 1.5mb/d. But here’s the main kicker from the StanChart report: only OPEC can bridge the big supply deficit. StanChart estimates that an Iran deal could potentially provide an extra 1.2mb/d in H2-2022, still leaving a significant gap that can only be realistically filled by those OPEC members with spare capacity, particularly Saudi Arabia and the UAE. And the oil markets might just get their wish. The UAE’s ambassador to Washington, Yousef Al Otaiba, told CNN on Wednesday that the country wants to increase oil production and will encourage the Organization of the Petroleum Exporting Countries (OPEC) to ramp up supply. So far, OPEC+ has defied pressure by developed nations to sharply ramp up production to meet the growing deficit, choosing to stick to its earlier policy of increasing production by 400,000 b/d every month. “The UAE cracked. They were one of the last holdout. Now that they said it, you can expect the Saudis will say the same thing,”Robert Yawger, vice president of energy futures at Mizuho Securities, has told CNN. And more help might come from yet another oil and gas powerhouse: the United States. In the friendliest rhetoric yet from the Biden administration, U.S. Energy Secretary Jennifer Granholm has appealed to energy companies to ramp up their oil and gas production to help meet global demand and bridge the shortfall left by Russia’s war in Ukraine. “We are on a war footing. The DoE and the Biden administration is ready to work with you… We need oil and gas production to rise to meet current demand,” Granholm told the CERAWeek by S&P Global energy conference in Houston. Fearing a repeat of the past decade, a majority of U.S. producers are eschewing production growth, opting to return excess cash to shareholders. Over the past five or so years, U.S. shale, in particular, earned the ire of Wall Street for its trigger-happy production policy, leading to mounting debts and years of poor shareholder returns. However, a growing number of producers are now willing to go against the grain. Exxon Mobil Corp. (NYSE:XOM) says it’s planning to significantly grow production and increase Permian production by as much as 25% in 2022. Meanwhile, Devon Energy (NYSE:DVN) and Pioneer Natural Resources (NYSE:PXD) have indicated a willingness to increase production, with Pioneer CEO Scott Sheffield recently saying that the industry could grow production by ~1mb/d annually for three years. Sheffield went on to say his firm would participate in a coordinated effort to accelerate U.S. production growth. The world is facing an extraordinary energy crisis, and investors are likely to be much more welcoming to the idea of U.S. shale opening up the taps again.
With crude hovering around $95-$130, fuel price hike in India inevitable
Continued hostilities between Russia and Ukraine as well as rising demand is expected to keep global crude oil prices in the range of $95-$125 per barrel in the short to medium term. On last Friday, the Brent-indexed crude oil price stood at over $112 per barrel. Just a few days ago, Brent rose to a 14-year high and crossed the $130 per barrel-mark. It neared the $140 per barrel level. Lately, crude oil prices have surged by more than 20 per cent on fears of tight supplies. Currently, Russia is one of the largest producers of crude oil in the world. It is feared that new and more stringent sanctions against Russia will curtail global supplies and stifle growth. For India, the crude oil price range is a cause of concern as it may add Rs15 – Rs25 in petrol and diesel selling prices. Till now, fuel prices have been steady since early November 2021, when the Centre reduced excise duty on petrol and diesel by Rs and Rs10 per litre, respectively. “Brent is expected to trade between a broad range of $85 to $125 levels. Geopolitical tension still exists and supply shortage will keep crude oil prices elevated,” said IIFL Securities VP, Research, Anuj Gupta. “If international prices sustain on higher levels then domestic petrol and diesel prices may increase by Rs 15 to Rs 25 in a staggered manner.” According to Kshitij Purohit, Lead of Commodities and Currencies CapitalVia Global Research: “Crude oil price is retracing from its highest peak of this year. The government has not yet increased the prices of domestic petrol or diesel due to elections in multiple states. In our view, the government will increase the price of petrol to Rs 120 per litre gradually by next month.” In addition, Tapan Patel, Senior Analyst (Commodities), HDFC Securities said: “We expect Brent oil prices to trade in the range of $95-130 per barrel in the medium term. We can expect a fuel price hike of at least Rs10 per litre, if oil prices sustain above $100 per barrel for a quarter of a period.”
No Bidders For Incredibly Cheap Russian Oil
Zero bidders. That was the outcome of a recent attempt to sell Russian crude typically favored by Asian buyers as more of the nation’s oil is shunned after its invasion of Ukraine. Sokol oil from the Sakhalin-I project in Russia’s Far East was offered by ONGC Videsh for May-loading, with the latest price indications showing deep discounts for the grade. The failure to attract bids follows a similar pattern to Russia’s Urals crude, which has struggled for buyers despite being incredibly cheap. Sokol is a favorite crude of Asian buyers such as South Korea, China, and Singapore, as well as Hawaii. The lack of interest could provide a sneak peek into what’s to come next week when another Far East Russian grade — known as ESPO — begins trading for the month. China’s independent refiners in the Shandong region are typically big consumers of the oil. ESPO yields a large amount of diesel when refined, making it a very attractive grade at the moment as fuel margins soar on concerns about the disruption to Russian flows. Sales of the grade typically start with a tender from Russian oil producer Surgutneftegas PJSC around the middle of the month. In the last reported ESPO transaction by Surgutneftegas, cargoes were sold at a healthy premium of between $6.80 a barrel and $7.20 a barrel over Dubai benchmark prices. There is likely to be a discount to spot differentials this time if Sokol’s values are used as a guide, according to traders. Not all buyers across Asia are likely to be averse to Russian crude. While the U.S. and oil majors such as Shell Plc have pledged to stop purchases, traders said some in India and China may still be open to buying, but only if they can secure the letters of credit and ships needed for transport. Many in Asia are also still receiving Russian cargoes purchased before the war, traders said. At this point, it’s unclear what ONGC Videsh will do with its unsold Sokol cargo.
Russia needs a market for its oil and India could benefit, but…
As history has shown us, markets do rebound after a war. But the world hasn’t learned from history how to forecast the conclusion of a conflict or its consequences. The invasion of Ukraine by Russia has caused global markets to tumble. Despite accounting for less than 2% of global trade, Russia and Ukraine dominate many commodities: the region supplies 37% of global palladium, 17% of natural gas, 13% of wheat, 12% of oil, and 9% of nickel. As the European Union and the US impose punishing sanctions on Russian business and commerce, its desperate oil corporations are promising India substantial discounts in exchange for the government speedily approving a payment system to circumvent the SWIFT embargo. Russia has asked India to increase its investments in the sanctioned country’s oil and gas sector, as well as to develop Russian companies’ sales networks in Asia’s third-largest economy. According to people acquainted with the situation, Russian oil producers are offering a 25-27% discount on dated Brent crude prices. Rosneft, a state-owned oil company, is already one of India’s largest crude suppliers. Significantly, Rosneft and Indian Oil Corporation signed a contract for the supply of up to 2 million tonnes of oil to India through the port of Novorossiysk by the end of 2022 during Russian President Vladimir Putin’s visit to India in December last year. So that was just two months before Putin’s forces invaded Ukraine. India has been attempting to diversify its oil import sources away from the Middle East by turning to Russia and the US. India is debating whether or not to accept Russia’s offer of discounted crude oil, but there are many variables to consider. While cheap oil is a boon to India’s economy at a time when global crude prices are at their highest since 2008, Western sanctions against Russia are likely to make it difficult to accept Moscow’s offer. On Wednesday, Finance Minister Nirmala Sitharaman said “a whole lot of factors” will decide on the import of Russian oil to India. The finance minister said Russia reached out to India to offer surplus oil at a discounted rate over the last two to three days. “There was an open offer over the last two-three days that Russia was giving it (crude oil) at some sort of discounted price, but we don’t know how it can be of effect because a whole lot of factors will have to be weighed in, we will have to get it from some port to ship it to India, and whether it is workable,” Sitharaman said. Russia is currently the world’s second-largest crude oil producer, trailing only the US and Saudi Arabia, but this ranking can change at any time. And if it starts giving India cheaper petroleum, it will undoubtedly benefit the Indian economy. Discounted oil will clearly be a blessing for India’s economy at a time when global crude prices have risen to their highest levels since 2008. The problem, though, is that the West’s strong sanctions against Russia are likely to make it impossible for India to accept Moscow’s proposition.
Bidding for DSF-III oil round, including ONGC, to start on Apr 1: DGH
Bidding for 75 small and marginal oil and gas discoveries, mostly of ONGC, that are being offered in the DSF-III bid round, will begin on April 1 and close on May 16, according to the DGH. The third bidding round under the Discovered Small Fields policy (DSF-III) was launched on June 10, 2021. The original deadline for submission of bids was August 31, 2021. However, this was postponed to October 29, 2021. The start was again put off to February 1, 2022 and closing slated for March 15, 2022. As the bid deadline approached, it was again postponed without any reasons being given. “Bid submission for DSF Bid Round-III will start on April 1, 2022, and end on May 16, 2022, the Directorate General of Hydrocarbons (DGH) said. DSF-III offers 32 contract areas, comprising 75 fields/discoveries, with a combined total area of more than 13,000 square kilometres, in nine sedimentary basins. The fields on offer include a few of the nomination fields of national oil company, ONGC, and some of the relinquished/unmonetised discoveries. According to the DGH, the 32 offered contract areas have a total resource potential of around 230 million tonnes of oil equivalent (MMtoe)/1.7 billion barrels (oil and oil equivalent of gas (OEG)). The government introduced DSF in October 2015 to monetise unmonetised discoveries of state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). Under the DSF policy, two bid rounds in 2016 and 2018 have been conducted wherein 54 contract areas with 101 fields were offered. The offered discovered fields include 54 in shallow water, 2 in deepwater, and 19 are on-land fields. These small and marginal fields were discovered by ONGC and OIL but they were not economically viable to be developed due to the fiscal regime and their small size. Under DSF, liberal terms including pricing and marketing freedom are offered, making them viable. Also, it is based on a revenue-sharing model, a single licence for hydrocarbon resources, no cess, full gas pricing freedom, and no riders for foreign companies/joint ventures. From the previous two bid rounds, 29 field development plans entailing USD 1.76 billion investment have been submitted, according to the DGH. Oil production from the areas awarded in two rounds of DSF is envisaged to reach 1.3 million tonnes by 2024 and gas output to touch 2.9 billion cubic metres, it said. India, the world’s third-biggest crude importer and consumer, has been pursuing a policy to promote domestic oil and gas production through a host of investor-friendly policy initiatives aimed to cut its import dependence to meet energy demand. The nation meets 85 per cent of its domestic oil demand through imports.
‘A whole lot of factors’ will decide on Russian oil import to India: Finance minister
Union finance minister Nirmala Sitharaman on Wednesday at a media interaction in the city said that a “whole lot of factors” will decide on import of Russian oil to India. While not suggesting that the country is averse to importing Russian oil, amid the Western countries economic sanctions and crude oil import bans due to the ongoing conflict between Ukraine and Russia, Sitharaman said over the last two to three days Russia has been making an open offer to supply its surplus oil at a discounted price. “There was an open offer over the last two-three days that Russia was giving it (crude oil) at some sort of discounted price but we don’t know how it can be of effect because a whole lot of factors will have to be weighed-in and we will have to get it from some port to ship it and then whether it can come to India, and whether it is workable…” she said. Sitharaman stressed the requirement of insurance for consignments if India does strike a deal with Russia to import oil to offset the rising price of crude due to the conflict. “Because these are consignments which should have adequate insurance cover. Do they get the insurance or not? The nitty-gritties, if at all it can be worked out, need to be worked out. However, the minister concerned is fairly seized of the matter andI have been in touch with him,” said Sitharaman. Meanwhile, the full blown war between Russia and Ukraine has also created a crisis scenario over import of sunflower oil, which is predominantly imported by India in large quantities from Ukraine. “The government has already started looking from other places where, if not sunflower oil, any other oil which can come into India and is used in India,” she said, adding that it may prove to be a challenge that needs to be addressed due to the war.
‘A whole lot of factors’ will decide on Russian oil import to India: Finance minister
Union finance minister Nirmala Sitharaman on Wednesday at a media interaction in the city said that a “whole lot of factors” will decide on import of Russian oil to India. While not suggesting that the country is averse to importing Russian oil, amid the Western countries economic sanctions and crude oil import bans due to the ongoing conflict between Ukraine and Russia, Sitharaman said over the last two to three days Russia has been making an open offer to supply its surplus oil at a discounted price. “There was an open offer over the last two-three days that Russia was giving it (crude oil) at some sort of discounted price but we don’t know how it can be of effect because a whole lot of factors will have to be weighed-in and we will have to get it from some port to ship it and then whether it can come to India, and whether it is workable…” she said. Sitharaman stressed the requirement of insurance for consignments if India does strike a deal with Russia to import oil to offset the rising price of crude due to the conflict. “Because these are consignments which should have adequate insurance cover. Do they get the insurance or not? The nitty-gritties, if at all it can be worked out, need to be worked out. However, the minister concerned is fairly seized of the matter andI have been in touch with him,” said Sitharaman. Meanwhile, the full blown war between Russia and Ukraine has also created a crisis scenario over import of sunflower oil, which is predominantly imported by India in large quantities from Ukraine. “The government has already started looking from other places where, if not sunflower oil, any other oil which can come into India and is used in India,” she said, adding that it may prove to be a challenge that needs to be addressed due to the war.
Reliance Industries stepping in to supply diesel-starved Europe
The global energy crunch spurred by Russia’s invasion of Ukraine is giving the world’s biggest refining complex a much-needed boost. Reliance Industry’s Jamnagar facility is lifting crude processing and deferring planned maintenance to take advantage of surging demand for diesel, according to people with direct knowledge of the matter. RIL is already sending shipments of the fuel to Europe, and this will increase in the coming months, said the people who asked not to be named as the information isn’t public. The complex in Gujarat can process 1.36 million barrels of crude a day from two refineries and is able to export most of the fuel. Owned by billionaire Mukesh Ambani, the 704,000 barrels a day export-focused plant been languishing since the pandemic hit, and only utilized around three-quarters of its capacity in January. “Reliance has large flexibility in terms of crude feedstock ratio and yield shifts, and it exports 80% of its output,” said Senthil Kumaran, head of South Asia oil at industry consultant FGE. “That gives it the maximum benefit in strong margin times.” Reliance shares rose as much as 4.3% in Mumbai. A spokesperson for the company didn’t immediately respond to an email seeking comment. Some Asian refiners are looking to send diesel abroad as the fuel skyrockets in Europe following Russia’s invasion of Ukraine. Prices there have risen to a premium of as high as $139 a ton over those in Asia, compared with less than $10 for most of last year. Some processors like Reliance are well-positioned to take advantage of the so-called arbitrage trade, but others are struggling with the surging costs for oil and are considering run cuts. Reliance had planned to shut one of the crude processing units at Jamnagar for about three weeks starting this month, but that’s now been postponed to September, the people said. The export-focused unit utilized only 74.7% of its capacity in January, data from India’s oil ministry show. Nayara Energy, 49% owned by Russia’s Rosneft Oil Co, also operates a refinery in the Jamnagar area and exports fuel, although in much lower volumes than Reliance. The big state-owned processors, such as Indian Oil Corp, are more focused on the domestic market. India has so far avoided condemning the invasion of Ukraine and has been abstaining from voting at the United Nations to denounce Vladimir Putin’s aggression. It hasn’t taken part in any sanctions against Moscow and has been urging Russia and Ukraine to hold talks to ease the situation. State-owned upstream explorer ONGC Videsh said earlier this month that it didn’t foresee any challenge in selling crude produced in Russia’s Sakhalin-I project, even after its operator Exxon Mobil began taking steps to wind down operations before eventually exiting its stake in the development
No need to panic. Oil prices could drop to $100 a barrel in two weeks: Arun Kumar Singh Chairman & MD, BPCL
The current oil surge wouldn’t last and prices are likely to drop to $100 per barrel within two weeks, Bharat Petroleum Corp (BPCL) chairman has said, adding that there was no need for India to panic. “Russian oil and gas exports are not going to be blocked unless Russia itself decides to do so, which is unlikely,” BPCL chairman Arun Kumar Singh told ET. He said Europe is also unlikely to stop importing energy from Russia, one of the world’s largest exporters of oil and gas. Crude oil prices soared to $139 per barrel on Monday after US Secretary of State Antony Blinken said the US and European allies are considering banning the import of oil from Russia. Prices eased a bit after Germany, the biggest consumer of Russian crude in Europe, rejected any such plan. Russia has warned that rejection of its oil would be “catastrophic” for the global oil market and prices could rise to $300 per barrel. Oil is up nearly $30 per barrel since Russia launched the invasion of Ukraine and is currently trading around $127. BPCL’s Singh said oil prices would give up the recent speculative gains quickly and fall to $100 per barrel in two weeks. It can fall further to $90 once the war concludes, he said. “There is no need for us to panic. We should just weather it out,” Singh said, adding that the prices were unsustainable. “World cannot afford the current prices. The global economy will slow down and there will be a correction in demand for crude,” Singh said. Sustained high prices can destroy 2-3% of global oil demand, which is about 2-3 million barrels per day, he said. This compares with Russia’s export of 5 million barrels per day of crude. The contract for two Russian oil cargoes for April delivery to BPCL is being honoured, signalling an absence of supply issue, Singh said. BPCL sources Russian cargoes from the spot market. Indian refiners usually source 30-40% from the spot market and the balance under long-term deals with producers. They also usually keep at least a month of inventory. Crude is already lined up for processing in April, Singh said. Add to this a month of inventory and refiners are safe until May in terms of their crude needs. State-run refiners need to increase domestic fuel prices by Rs 12-15 per litre to align them with international rates after keeping them static for more than four months due to assembly elections in five states, according to industry sources. With the conclusion of voting, prices are expected to go up. The hikes will likely be gradual as companies may want to guard consumers against the volatility in the international market. Economists fear a full pass-through of fuel costs could ratchet up inflation and inflationary expectations, hurting the economic recovery.