Higher US crude import may hinge on prices competitive with Middle East supplies

Last month, the US Treasury blocked global transactions involving Russia’s two biggest oil companies — Rosneft and Lukoil, accusing them of fuelling Moscow’s war against Ukraine.

A substantial increase in purchase of crude oil from the United States by Indian refiners may hinge on American prices staying competitive with leading Middle Eastern benchmarks, people aware of the discussions have told Moneycontrol.

The price of US crude is likely to be closer to that offered by Saudi Arabian and other Middle Eastern producers, one of the people said. “If you are importing a substantial amount of oil, it will be close to the market price,” the person added.

Even though crude oil from the US could cost slightly more than the price of Russian oil, Indian lenders have turned increasingly cautious as sanctions have targetted two major Russian energy firms, the source said.

Last month, the US Treasury blocked global transactions involving Russia’s two biggest oil companies - Rosneft and Lukoil - accusing them of fuelling Moscow’s war against Ukraine. The European Union followed with another set of energy sanctions, including a total ban on imports of Russian liquefied natural gas (LNG) from January 2027 for long-term contracts.

“India has told the US that the country has space to buy more oil from them as long as prices are competitive, closer to what Russia offers, or at least as much as what Middle East gives us, with the best available oil,” a second person said.

The Commerce Ministry did not respond to requests for comment at the time of publishing this report.

Russia has been the top supplier of crude oil to India in October (up to October 15), with imports at around 1.8 million barrels per day, an increase of 250,000 bpd over previous month according to data from Kpler. This was followed by supplies from Iraq, Saudi Arabia, and the United Arab Emirates, respectively.

India has already increased its crude oil purchase from the US, which rose to 0.6 million barrels per day in the first 15 days of October, up from 207,000 bpd during September, data from Kpler showed.

Commerce Secretary Rajesh Agarwal had on October 15 said that India has room to add an additional $14-15 billion worth of energy purchases from the US annually, which would be in line with the strategy to diversify such imports.

While Brent crude, the international benchmark used by the Organization of the Petroleum Exporting Countries (OPEC), stood at $64.85 as of 2:20 pm on November 3, the West Texas Intermediate (WTI), a key benchmark for US oil prices, was trading lower at $61.04.

However, what could make oil from the US slightly more expensive when compared to the Middle East is the difference in freight costs.

The Oil Math
According to Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA, the discounts offered to Indian companies on Russian crude was about $2 per barrel in the week starting October 20.

When it comes to the cost of crude from Middle East, it depends on the grade of oil being imported by India, Vasisht said, adding that it could cost $3-5 per barrel higher or lower, when compared to crude from Moscow.

According to Prashant Vasisht, the premium is dependent on the variety of oil. “There are two primary variants, Arab lite and Arab heavy from the Middle East, and depending on the sulphur content it can be priced higher and lower than the benchmark Brent crude.”

Vasisht added that freight costs for India is higher when importing crude oil from the US as the journey takes around 25 days, compared to about five days from key Middle Eastern suppliers, which may make US imports less economical, at times. Explaining the freight differential, Vasisht said it costs about $3 per barrel to ship crude oil from the US to India, compared to around 70 cents per barrel from the Middle East.

Tariff and Crude
India is facing a 50 percent tariff on most exports to the US, which includes an additional 25 percent owing to Russian oil purchases. New Delhi is currently negotiating a trade deal with Washington, the deadline for which is the Fall of this year.

According to the second person cited above, increasing oil purchases from the US may lead to the removal of the additional 25 percent tariff levied on Indian goods, which the American administration has directly linked to crude buys from Moscow.

President Donald Trump on October 22 had said that India would reduce or halt Russian crude imports, linking it to ongoing trade negotiations. Russia currently contributes around 34 percent of India’s total oil requirements compared to just 0.2 percent before the Ukraine war started in 2022.

The Indian government has not instructed refiners to reduce purchases of Russian crude, leaving any cuts at the companies’ discretion, based on pricing and other parameters, Moneycontrol had reported last month.