Indian refiners' request for discounted crude term-deal is a welcome move: Oil Minister Puri

A long-term contract with Russia at a discounted price becomes important for India as the country imports around 85 percent of its oil requirement.

Indian refiners’ request for negotiating a long-term deal with oil suppliers at discounted prices would be a welcome move, said Minister of Petroleum and Natural Gas Hardeep Singh Puri on May 22. The minister added that India consumes around five million barrels per day of crude oil and has the “market card” to negotiate for the deal.

The Indian government, according to a Bloomberg report, wants state-run oil marketing companies (OMCs) and private player Reliance Industries Limited (RIL) to jointly negotiate a long-term deal with Russia at a fixed discount. The move comes amid uncertainty in crude oil prices on account of geopolitical tensions and supply cuts announced by OPEC and its allies (OPEC+).

Addressing the media report, Puri told reporters: “Why is that any surprise? You are holding one of the most important card in your hand, which is the market card, which means that 5 million plus barrels a day (of crude oil) are consumed in India. Why should the Indian refiner not want to negotiate a good discount on a long-term basis. I welcome it….If somebody in the OMCs says let’s all get together, I would say it is a very good thing.”

Puri, however, said he was not aware if the report was true.

ALSO READ: India’s crude oil imports from Russia jump 18% in April amid decline in total imports

To be sure, companies including Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) procure oil from Russia on term basis. Indian Oil Corporation Limited (IOCL) had a term contract with the Eurasian country which expired in March 2024 and has not been renewed yet.

A long-term contract with Russia at a discounted price becomes important for India as the country imports around 85 percent of its oil requirement. The share of oil imports for India seems to be increasing in the coming year as the country’s energy demand is on a rise while the domestic production remains steady.

Russia, since the war between Ukraine and Moscow, has been providing crude oil to India at discounted prices and has become the top supplier of crude oil to the country. However, in the recent months, discounts on oil from Moscow has narrowed amid moderation in supply of Russian oil.

ALSO READ: BPCL expects Russian crude to play ‘significant role’ in current year; procured 39% oil from Moscow in FY24

Meanwhile, the movement of crude oil prices have also not been favourable for the country with prices rising 16 percent in the first quarter of calendar year 2024 and denting OMCs fourth quarter performance. Brent prices touched $90 per barrel in April amid rising tensions between Iran and Israel but have cooled down to around $80-$82 per barrel since then.

Puri said despite the supply cuts announced by the OPEC+, oil prices “are holding” as the equilibrium between demand and supply is being met. On May 22, Brent prices are trading around $80 per barrel.

“The announced cuts by OPEC+ were very substantial. We used to have a total production and consumption in the world of around 100 million barrels a day, which has come down to 95 million barrels. So, around 7 million barrels have been taken out of the market. In spite of all that, prices have held,” said the minister.

Saudi Arabia-led OPEC+ had announced voluntary oil output cuts of 2.2 million barrels per day, which are in place until June. The oil cartel is yet to take a call on extending the voluntary production cuts.

Decline in profits of refiners

The state-run oil marketing companies reported a decline in their net profits in the fourth quarter of the financial year 2023-24. The combined net profit of the refiners was Rs 12,986.9 crore in the quarter ended March 31, a significant drop from Rs 21,320.02 crore in the same period last year.

The slump in profits of the OMCs including Indian Oil, Bharat Petroleum and Hindustan Petroleum in the January- March period comes due to elevated and volatile crude oil prices, and decline in gross refining margins (GRMs).

In the fourth quarter, Indian Oil reported a decline of 49 percent in the consolidated net profit at Rs 5,487.92 crore, compared to Rs 10,841.23 crore last year. Bharat Petroleum and Hindustan Petroleum witnessed a decline of 30 percent and 25 percent, respectively, in their consolidated net profit in the quarter under review.