Indian Oil Corp set to tap spot oil market as Russian term deal lapses
Rosneft and Indian Oil Corp (IOC) find themselves at an impasse regarding the renewal of their petroleum supply deal, leading IOC to explore alternative avenues in the spot markets for Russian petroleum. The annual agreement, which expired in March, was initially forged during Russian President Vladimir Putin’s visit to India in December 2021, months before Moscow’s military intervention in Ukraine. However, negotiations between the two entities have stalled due to disagreements over pricing and volume terms, necessitating IOC’s pivot to spot market purchases.
Sources familiar with the matter revealed that the oil deal for the fiscal year 2024-25 has not been renewed as yet, highlighting the lingering uncertainties surrounding the negotiations. Although there remains a possibility for a deal to be reached if mutually acceptable terms can be agreed upon, IOC has opted to procure Russian oil from the spot markets in the interim.
Despite the diplomatic tensions and economic repercussions stemming from the conflict in Ukraine, India has maintained its significant reliance on Russian oil, with the latter emerging as the primary supplier to one of the world’s largest oil importers. Under the previous annual purchase contract, IOC secured a monthly supply of 1.5 million metric tons (equivalent to approximately 360,000 barrels per day) at a notable discount of $8-$9 per barrel to Dubai quotes on a delivered basis.
However, recent negotiations between IOC and Rosneft regarding the potential renewal of the agreement have hit roadblocks. Rosneft’s offer for the new deal failed to meet the expectations of Indian refiners in terms of both volume and discounts. Specifically, Rosneft proposed supplying 4-6 cargoes a month, totaling up to 4 million barrels, which fell significantly short of the collective requirements put forth by Indian refiners. Additionally, the discount offered by Rosneft, ranging from $3 to $3.50 per barrel to Dubai quotes under the proposed term deal, was on par with the levels available in the spot markets, according to sources familiar with the negotiations.
Despite the imposition of sanctions and geopolitical tensions, India has persisted in its procurement of Russian oil. However, complications have arisen concerning payment issues, particularly concerning India’s state refiners’ decision not to lift Russia’s light sweet Sokol grade oil during joint negotiations with Rosneft due to payment difficulties. In particular, IOC is reportedly encountering challenges in settling payments for three Sokol oil cargoes acquired last year, adding another layer of complexity to the ongoing negotiations and procurement arrangements between the two entities.
