India Continues to Benefit from Cheap Russian Crude Oil as Prices hit $90/Barrel

With international crude oil prices breaching USD 90 per barrel for the first time in ten months, CareEdge Ratings said on Sept 11 that Indian refiners, which benefit from cheaper Russian crude, should still be able to clock refining margins of around USD 9-10 per barrel in the current fiscal. With Brent crude breaking the USD 90 per barrel mark this month, the gap between international benchmark prices and Urals - Russia's flagship crude - has widened for Indian refiners, as Russian crude can be sourced within the G-7 price cap of USD 60 per barrel, according to the report.

"The Urals had mostly traded below the G-7 imposed price cap of USD 60 per barrel but have breached the cap in recent weeks whereby it is trading at around USD 69. Upon the rise in prices of the Urals, the share of Russian crude in India's total crude oil sourcing basket declined to 34 per cent in August 2023 from nearly 40 per cent since the outbreak of the Russia-Ukraine war," it said.

With Saudi Arabia and Russia agreeing to cut daily crude oil production by 10 lakh barrels until December 2023, a significant drop in crude prices is unlikely in the near term due to stable demand prospects.

"In this context, Indian refiners, who are the primary beneficiaries of cheaper Russian crude, should still be able to clock gross refining margins (GRMs) of around USD 9-10 per barrel in 2023-24 fiscal, as the likely decline in their margins on processing Brent crude is expected to be offset by a significant expansion in margins on processing Russian crude, which can even balance out the potential decline in supply of Russian crude in the near term," CareEdge said in a notarized statement.