At least two Indian refiners plan to buy less Saudi oil than usual in May, after the kingdom raised the official selling price (OSP) to record highs for Asia, two sources said on Wednesday, as India increases purchases of cheap Russian crude.
India, the world’s third biggest oil importer and consumer, has been hit hard by rising crude values, with pump prices in some states touching record highs.
State oil producer Saudi Aramco, the world’s top oil exporter, has raised crude prices for all regions, with those to Asia hitting all-time highs.
The Middle East accounts for the bulk of India’s oil imports, with Iraq and Saudi Arabia the top two suppliers to Asia’s third largest economy.
The sources at the two Indian refiners declined to be named, citing confidentiality.
They did not disclose the volumes refiners would buy, and said the reductions in May would be marginal because they have to lift the amount they have committed to under annual contracts.
To mitigate the rising cost of oil imports, India has turned to Russian barrels that are available at a deep discount to the dated Brent benchmark, citing “national interests”.
Some companies and countries have shunned Russian crude after the country began its invasion of Ukraine on Feb. 24. Moscow refers to the conflict as a “special military operation”.
Indian refiners have bought at least 16 million barrels of cheaper Russian oil for May loading on a delivered basis, similar to purchases for the whole of 2021, according to Reuters calculations.
The companies have mostly bought Russian Urals, a grade similar in quality to medium sour crude produced in the Middle East and West Africa, mainly Angola.
Ehsan Ul Haq, an analyst from Refinitiv, said rising purchases of Russian crude meant India would likely buy less from Middle Eastern suppliers, including spot purchases of grades such as Iraq’s Basra oil.
In turn, more Gulf crude, as well as some West African blends could end up in Europe, one of the Indian refiner sources said.
“Apart from altering trade flows, shifts in buying patters will likely raise freight costs because there will be long-haul journeys,” Haq said.
Although Russian imports were meeting only a small fraction of India’s overall needs, he said they were significant for Russia as it loses market share in traditional European markets.