By Bharat Petroleum Corp (BPCL), a state-owned oil refiner in India, anticipates a reduction in its processing of Russian oil to 20% in March, compared to 31% in the current month.
This information was shared by Vetsa Ramakrishna Gupta, BPCL’s head of finance, during an analyst call on Thursday, according to a Reuters report.
The reduction in Russian oil processing is due to a lack of Russian cargo available in the market after the US imposed new sanctions on the country’s producers, tankers and insurers.
Also, BPCL awaited offers from traders for other grades of crude oil.
Indian state refiners, including BPCL, Indian Oil Corp (IOC), Hindustan Petroleum (HPCL), and Mangalore Refinery and Petrochemicals (MRPL), have been purchasing Russian oil from the spot market.
However, uncertainties surrounding the future availability of Russian oil have compelled these refiners to actively seek alternative sources.
BPCL’s other options
The spot market, characterised by its immediate delivery and pricing based on current market conditions, has been a key avenue for procuring Russian oil for Indian refiners.
However, the new sanctions imposed by the US earlier this month have affected the availability of Russian oil as traders avoid these cargoes.
This uncertainty has prompted Indian refiners to diversify their sourcing strategies and explore other options to ensure a consistent and reliable supply of crude oil.
Indian refiners are seeking oil imports from alternative sources, including Murban crude from Abu Dhabi, due to a shortfall in oil supply caused by geopolitical tensions, production cuts, or increased domestic demand.
But, a sudden increase in demand for crude grades from the Middle East has led to a spike in spot price in those regions.
Russian oil supply falters
BPCL experienced a notable decrease in Russian oil processing during the December quarter, Gupta said on the analyst call.
This decline, from approximately 35-40% in the previous month to 31% in the December quarter, reflects a broader trend among Indian state refiners.
The supply of Russian oil to these refiners, including BPCL, dwindled in January and is expected to remain subdued next month, contributing to the decreased processing figures.
Gupta stated that the lack of offers from traders to sell Russian oil for March delivery might be temporary, as Russia has not decreased its oil production.
The US government has implemented extensive sanctions aimed at Russian oil producers and tankers.
These sanctions have disrupted the supply of oil from Russia, which is the world’s second-largest oil producer.
Additionally, the sanctions have resulted in a tightening of the availability of ships used to transport oil, further impacting the global oil market.
Shipping dynamics
Gupta stated that his company acquires 55% of its oil requirements through yearly contracts and fulfills up to 35% of its needs from the spot market.
The seller takes on the responsibility of arranging the necessary tanker for transportation and securing insurance coverage for the shipment.
This practice aligns with the standard procedure followed by Indian refiners when purchasing Russian oil, where the oil is sold on a delivered basis, meaning the seller is responsible for delivery to the designated port.
Additionally, a crucial requirement in these transactions is that traders must ensure that the crude oil is not transported using any vessel that has been subjected to sanctions.
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