Shipping Costs Trump Russian Oil Discounts for India

Indian refiners are prioritizing oil from West Asia over Russian crude due to escalating freight costs. While premiums for Russian crude have narrowed to $1-$2 per barrel for December, the significant increase in shipping expenses makes Middle Eastern oil more economical for India. This has led companies such as BPCL and HPCL to reduce their intake of Russian oil.

The cost of transporting Russian crude to India has surged, with some routes reaching nearly $30 per barrel in November. This contrasts sharply with pre-conflict rates from the Middle East, which were significantly lower. Analysts note that while Russian Urals is priced against Dated Brent, the current market dynamics, including higher freight, make it more expensive than some Middle Eastern grades.

BPCL, for instance, plans to significantly decrease its Russian crude purchases in November, opting for Middle Eastern grades that offer better commercial terms. Although December offers for Russian crude have eased, potentially restoring competitiveness, the immediate focus remains on managing the increased transportation expenses.

HPCL has also adjusted its procurement strategy, increasingly opting for delivered prices where suppliers manage transportation. This change reflects the substantial rise in freight rates, which have nearly doubled between the June and September quarters. Despite this, producers holding stranded cargoes are offering discounts, partially offsetting the higher shipping costs.

India's import patterns illustrate this trend, with Middle Eastern crude accounting for a larger share of total imports in September, while Russian imports saw a decline. This strategic shift underscores the impact of global shipping costs on India's energy procurement decisions.