At least two Indian refiners plan to buy less than usual Saudi oil in May after the kingdom raised the official selling price (OSP) to record highs for Asia, two sources said on Wednesday, as India ramps up purchases of cheap Russian crude.
India, the world’s third largest oil importer and consumer, has been hit hard by rising crude prices, with pump prices hitting record highs in some states.
State-owned oil producer Saudi Aramco, the world’s largest oil exporter, has hiked crude oil prices for all regions, with prices hitting all-time highs in Asia.
The Middle East accounts for the bulk of India’s oil imports, with Iraq and Saudi Arabia being the two largest suppliers to Asia’s third largest economy.
Sources for the two Indian refineries declined to be named, citing confidentiality.
They didn’t disclose the amounts refiners would buy and said May’s reductions were marginal as they have to increase the amount they’ve committed to under annual contracts.
To mitigate the rising cost of oil imports, India has turned to Russian barrels, which are available at a significant discount to the outdated Brent benchmark, citing “national interests”.
Some companies and countries have shunned Russian crude after the country began invading Ukraine on February 24. Moscow describes the conflict as a “special military operation”.
According to Reuters calculations, Indian refiners bought at least 16 million barrels of cheaper Russian oil for shipment in May on a delivered basis, similar to all of 2021.
The companies have been buying mostly Russia’s Urals, a grade similar in quality to the medium-acid crude produced in the Middle East and West Africa, primarily Angola.
Ehsan Ul Haq, an analyst at Refinitiv, said rising purchases of Russian crude meant India was likely to buy less from Middle Eastern suppliers, including spot buying of grades like Iraq’s Basra oil.
In turn, more Gulf crude oil as well as some West African blends could end up in Europe, one of the Indian refinery sources said.
“Aside from changing trade flows, changes in buying patterns are likely to increase freight costs as there will be long-distance travel,” Mr Haq said.
Although Russian imports meet only a small fraction of India’s total needs, they are important for Russia as it loses market share in traditional European markets.