Bharat Petroleum Corporation Limited (BPCL), a state-run refiner in India, is currently in talks with Rosneft, a Russian petroleum refinery company, to buy approximately 6 million metric tons (43.8 million barrels) of discounted Russian crude. As per a Reuters report, the pricing of this deal is expected to be pegged with the Dubai benchmark.
If the deal is finalised, it would strengthen India’s partnership with Russia, which has become India’s largest oil supplier, particularly in the wake of the Western sanctions imposed on Moscow. Further, in that case, it would also reflect Rosneft’s continued shift to link its oil price with the Middle Eastern benchmark that is commonly used in Asia and shift away from the predominantly Europe-based Brent benchmark.
The details of the ongoing deal
The report added that under this pending deal, Rosneft would deliver the equivalent of 6 to 7 cargoes, each consisting of about 700,000 to 720,000 barrels, per month through March 2024 to the state-run refiner, BPCL.
According to Reuters, the ongoing discussions have reached an advanced stage. Now both parties have been actively negotiating to work out details including terms of payment, for a potential contract. Currently, the deal needs approval from BPCL’s board. If approved then it would further expand the share of Russian oil purchased by the world’s third-largest oil importer.
With an approximate share of 40 percent, Russia has become India’s top oil supplier. It is important to note that in the past Indian refiners rarely bought Russian oil because of its high transport cost. However, when the West imposed sanctions on Moscow, it diverted its supplies away from Europe and started selling crude at a discounted price.
From the 5th of December, the European Union (EU) nations have stopped purchasing Russian oil. Subsequently, to limit Russia’s economic leverage, the Group of Seven (G7) countries joined the EU and imposed a price cap of $60 per barrel on Russian crude.
As per the report, Russian crude sold to BPCL would be priced at a discount of $8 per barrel to the Dubai benchmark.
Earlier in April, Indian Oil Corp (IOC), the country’s top refiner, struck a deal with Rosneft for buying up to 1.5 million metric tons of oil per month. Reportedly, the crude was pegged with the Middle East benchmark and the discount was around $8 to $10 per barrel.
Russian refinery companies are shifting away from Europe-dominated Brent benchmark
Due to Western sanctions, Russia began redirecting its crude oil shipments toward Asia. As a result, Rosneft has gradually moved away from the Europe-dominated Brent benchmark. Notably, both benchmarks are denominated in dollars. Further, they are set by the S&P Global Platts which is a unit of US-based S&P Global Inc.
The Dubai benchmark is largely influenced by oil trading in Asia and the Middle East, whereas Brent is primarily used to price crude from Europe, Africa, and South America. Reuters reported that like most of the Indian refiners, BPCL also makes spot purchases of Russian oil and it is mostly done from traders. Additionally, in the ongoing contract negotiations, BPCL intends to import a range of Russian oil grades including Sokol, Varandey, and Urals.
