News Oil & Gas

India oil prices: India turns a deaf ear to West for paying Russia more for its own gains


A resurgent, pricier Brent Crude means India is lapping up more Russian oil, despite the latter trading well above the Western price cap of $60. A fragile global economy is worryingly staring at the prospects of a recession, and analysts say there is more tightness ahead in the oil market. And India, the third-biggest buyer of oil, cannot afford that.

Indian oil minister Hardeep Singh Puri said on October 3 that India will not buy Russian oil if it breaches the Western cap.

In December, the Group of 7 countries and various others implemented a maximum price of $60 per barrel for Russian crude oil. While buyers can pay more, they would lose access to essential services provided like insurance by companies in the countries that signed the agreement. The objective was to ensure the continuous flow of Russian oil while also reducing the Kremlin’s revenue by pressuring it to accept reduced prices.

ET reported recently that with China seeing a lower intake of Russian oil, Indian refiners bought more of the Russian supply. India is currently buying Russian oil at nearly $80 per barrel, around $20 above the G7-imposed price cap.

Russia supplied 1.57 million barrels per day in September, up from 1.44 mbd in August, and increased its share in Indian crude imports to 38 per cent from 33 per cent a month earlier, according to energy cargo tracker Vortexa.

Expensive, but still cheaper

India has long argued that since it is a matter of energy security, it would purchase any oil that is cheaper, a stance it has relied on ever since it upped its reliance on Russia for oil.Since mid-July, Russia’s primary export grade Urals, has been trading at levels exceeding the Western price limit of $60 per barrel due to production reductions implemented by Organization of Petroleum Exporting Countries and its allies led by Russia, known as OPEC+. Reports say that production cuts mean discounts on Urals have narrowed, yet make for a better proposition given the expensive alternatives.

Brent crude prices went up to $95 a barrel in recent weeks, a rise of about 27 per cent since the end of June. India, like many other developing nations has made its dismay clear.

Puri has long called for OPEC+ to consider how their policies affect oil-consuming countries.

“The opening position with any producing country – they will tell you, ‘we don’t deal with prices,’ to which my response is that: if you deal with the amount of energy that you release – or stocks that you release – you may not want to, but you do affect prices.”

Despite the deep squeeze in the oil market, “OPEC+ has the right policy,” news agency Bloomberg quoted United Arab Emirates Energy Minister Suhail al Mazrouei as saying on Monday.

Saudi Arabia said on Wednesday it will keep its extra 1 million bpd production cut in place until the end of 2023, while Russia said separately it will maintain its reduction of 300,000 bpd until the end of December, thereby tightening the market further.

A costlier brent: calamity

The global economy has remained wary of a probable recession of late due to geopolitical developments and monetary tightening. Furthermore, a resurgent crude could make central bankers’ jobs even more difficult, something that the Reserve Bank of India recognises.

The Rupee has been losing its value against the dollar steadily. Reports say that when it comes to the Rupee, oil is even more expensive than when it hit $150 a beryl in 2008. If the Brent were to get any more expensive, the dollar would lead to a rise in the USD, making RBI’s fight against inflation tougher.

For most of 2022 and 2023, India has bought Russian oil at heavy discounts. But those discounts have now weakened. Reports say that Russian flagship Urals crude was selling at around $40 barrels below Brent. Ural is now selling at around just $10 under.

For RBI Governor Shaktikanta Das & co, the situation is already getting a tad complex. A stronger dollar could also lead to demand destruction, something that the Indian officials have alluded to.

“High prices lead to demand destruction,” Pankaj Jain, secretary at the Ministry of Petroleum and Natural Gas said in an interview recently. “Our viewpoint is we are finding these prices difficult to pass, difficult to continue to meet our energy needs.

Higher Brent impacts India’s current account deficit (CAD) as well. Since large payments have to be made in dollars to buy crude, the rupee takes a hit vis-a-vis the US dollar.

According to recent data from the RBI, India’s CAD increased significantly, soaring seven times to reach $9.2 billion during the April-June quarter. This is a substantial rise from the previous quarter, which recorded a CAD of $1.3 billion. The ongoing rise in oil prices and a decrease in global market demand, which has led to a slowdown in exports, are anticipated to affect India’s fiscal math further.


Source link