Indian Refiners Eye Middle East Crude Amid Decline in Russian Spot Oil Supplies

India’s state-run refiners are exploring Middle Eastern crude options as spot supplies from their top supplier, Russia, dwindle, sources revealed. The move comes amid rising domestic demand in Russia and commitments under the OPEC production pact, which have tightened the availability of Russian oil for spot purchases.

The three major state refiners — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) — are reportedly facing a shortfall of 8-10 million barrels of Russian crude for January loading, according to sources familiar with the matter.

Turning to Middle Eastern Crude

To address the gap, refiners are considering increasing their intake from Middle Eastern suppliers through optional volumes under existing term contracts or by issuing spot tenders for high-sulfur crude oil. One source noted that IOC, India’s largest refiner, has previously issued spot tenders for sour crude grades, including in March 2022.

The refiners also intend to draw on existing inventories to meet crude processing requirements through March, offering some temporary relief. However, concerns remain about long-term supply challenges from Russia.

“We have to explore alternative grades as Russia’s own demand is rising and it has to meet its commitments under OPEC,” said one of the sources.

Factors Behind Russian Oil Shortfall

Russia’s spot crude exports have declined since November, attributed to the resumption of domestic refinery operations post-maintenance and weather-related disruptions in shipping.

Additionally, a significant portion of Russia’s seaborne oil exports are tied to a deal with Indian private refiner Reliance Industries, which limits the availability of spot sales, sources said.

Russia, a key ally of the Organization of the Petroleum Exporting Countries (OPEC), has also pledged to cut oil output from the end of 2024 to offset earlier overproduction, further constraining supply.

Economic Considerations

India, the largest importer of Russian oil, has benefited from discounted prices on Russian crude since the European Union imposed sanctions on Russian energy imports following the Ukraine invasion in 2022. Russian oil currently accounts for over a third of India’s energy imports.

While alternatives to Russian oil exist, the cost differential remains a concern for Indian refiners. “It is not that alternatives to Russian oil are unavailable, but our economics will suffer,” one source explained, noting that Russian crude has been at least $3 to $4 cheaper per barrel compared to rival grades.

Moreover, sources said traders are offering Russian oil with payment options in Chinese Yuan. However, Indian state refiners ceased such payments after government advice last year.

The ongoing supply constraints and potential shift to higher-cost alternatives could influence India’s crude import strategy in the months ahead.