Indian Oil Corporation’s New Strategy: Tapping into Spot Oil Market
During collaborative discussions with Rosneft, Indian state refiners opted out of acquiring Russia’s light sweet Sokol grade oil due to payment challenges.
Rosneft and Indian Oil Corporation have not yet reached an agreement to renew their oil supply deal, which expired in March. According to three sources familiar with the matter, the disagreement stems from price and volume negotiations. Consequently, India’s leading refiner is now looking to the spot markets for its oil supply. The annual oil deal between IOC and Rosneft was initially signed during Russian President Vladimir Putin’s visit to India in December 2021, and it was renewed for a second time a year ago. This renewal occurred prior to Moscow’s military involvement in Ukraine.
According to one of the sources, the agreement for 2024-25 has not been renewed. Additionally, two sources indicated that IOC and Rosneft could still reach an agreement if they can come to terms. However, in the interim, the Indian company plans to procure Russian oil from the spot markets.
New Delhi has been increasingly relying on discounted Russian oil, especially after Western nations refrained from purchases and imposed sanctions on Moscow following its invasion of Ukraine. As a result, Russia has emerged as the primary supplier to the world’s third-largest oil importer. Under IOC’s annual oil purchase contract with Rosneft, the agreement entailed a monthly supply of 1.5 million metric tons (equivalent to 360,000 barrels per day) at a discount ranging between $8 to $9 per barrel based on Dubai quotes, with delivery included.
Sources previously informed Reuters that IOC, along with other state refiners Bharat Petroleum Corp and Hindustan Petroleum Corp, were engaged in negotiations with Rosneft for an annual contract of up to 400,000 barrels per day of oil starting from April 1.
However, two sources revealed that Rosneft’s offer fell short, proposing to supply only 4-6 cargoes per month, totaling up to 4 million barrels. This was significantly lower than the quantity sought collectively by Indian refiners.
Additionally, Rosneft’s proposed discount of $3-$3.50 per barrel to Dubai quotes in the term deal mirrored levels found in spot markets, according to two sources. Requests for comments from Rosneft, IOC, BPCL, and HPCL were not immediately answered.
Despite facing challenges posed by various sanctions, India has maintained its purchases of Russian oil. However, during joint negotiations with Rosneft, Indian state refiners opted not to procure Russia’s light sweet Sokol grade oil due to payment issues.
According to two sources, IOC is currently facing difficulties in making payments for three Sokol oil cargoes acquired last year.
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