Indian refiners are paying roughly $10 a barrel above Brent for Gulf crude as the Middle East conflict tightens physical supply, according to Business-Today. The price Indian refiners pay for crude is increasing more rapidly than global benchmarks, with Brent futures rising around $10 a barrel over the past two weeks to move above $91 a barrel on Tuesday. A few weeks earlier, global oil prices had dropped following a US-Iran truce.
Physical crude premiums surge from Gulf to West Africa
Tighter physical supplies have pushed up premiums for oil barrels from the Gulf and West Africa, Business-Today reported. The tighter market has strengthened suppliers' bargaining position and forced Indian refiners to turn to expensive spot purchases to secure Gulf supplies.
According to Business-Today, Gulf suppliers are seeking premiums of $3-4 a barrel over the Dubai-Oman benchmark, which itself is trading at a premium of $6-7 a barrel to Brent. As a result, the effective price of Gulf crude for Indian refiners is around $10 a barrel higher than Brent.
"Every trader is asking for a premium," a refinery executive told ET, as reported by Business-Today.
Saudi Aramco's official selling prices for its various crude grades, which are $1.5-3 a barrel below Dubai-Oman, are offering only limited relief, the report said.
Disruptions in the Red Sea and Strait of Hormuz have reduced the availability of crude under term contracts, industry executives told Business-Today. Term-contract crude is supplied on a free-on-board (FOB) basis, but the number of vessels prepared to enter ports in the conflict-affected region is too small. Traders, including the trading divisions of Gulf national oil companies, are assuming greater risks to transport cargoes through the troubled waterways, in some cases using dark fleets and ship-to-ship transfers — with the additional risk reflected in the premiums demanded.
West African crude, another important source for Indian refiners, has also seen its premiums rise. "West African grades appear increasingly unviable," another executive said, as reported by Business-Today.
Russian and Venezuelan discounts vanish
The market situation is markedly different from early July, when Brent spot prices dropped below $70 a barrel following the implementation of a US-Iran truce, Business-Today noted. Crude that had been stranded in the Persian Gulf entered the international market at that time, easing supply concerns. By last week, however, Brent spot prices had climbed above $93 a barrel. The 60-day truce ended on Monday.
The surge in available crude following the temporary truce had increased discounts on Russian and Venezuelan oil. Since then, the discount on Russian crude has largely disappeared, while the price reduction on Venezuelan barrels has narrowed substantially, according to executives cited by Business-Today.
| Benchmark / Variable | Level |
|---|---|
| Brent futures, Tuesday | Above $91/barrel (up ~$10 over two weeks) |
| Brent spot, early July | Below $70/barrel |
| Brent spot, last week | Above $93/barrel |
| Dubai-Oman premium to Brent | $6-7/barrel |
| Gulf supplier premium over Dubai-Oman | $3-4/barrel |
| Effective Gulf crude premium to Brent for Indian refiners | ~$10/barrel |
| Saudi Aramco OSP vs Dubai-Oman | $1.5-3/barrel below |
Refiners diversify to US, Brazil and Guyana
To compensate for the reduced availability of Gulf crude and steer clear of increasingly costly West African barrels, Indian refiners are seeking additional supplies from more distant producers, including the US, Brazil and Guyana, Business-Today reported. Despite the changing market conditions, Russian crude continues to be the primary source for deliveries through September, the report said.
Sanctions overhang could push prices higher
Indian refiners could face additional difficulties in securing crude if the US further tightens sanctions on buyers of Russian oil, industry executives told Business-Today. The US Senate recently passed legislation seeking to impose tariffs of as much as 100% on India, China and other countries purchasing Russian crude. Such action could put additional pressure on global supplies and drive oil prices higher, the report said.
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