Refiners may need a rethink amid shrinking Russian crude discounts

Even after reduction, discounts on Russian crude oil may be contributing $1.5 to $2.5 a barrel to refiners' gross refining margins S DINAKAR New Delhi, 21 April India's appetite may be waning for crude oil from Russia, the country's biggest source, with discounts shrinking by 77 per cent from a record high in early 2023, and by 61 per cent from the months after the invasion of Ukraine in February, suggests exclusive data accessed by Business Standard.

But even record-low discounts at present are offering value to India's staterun refiners, which are grappling with the inability to adjust pump prices for nearly two years. They lowered petrol and diesel rates by ₹2 per litre last month, despite rising crude oil prices.

Discounts on Russian crude oil could currently be contributing $1.5 to $2.5 per barrel to gross refining margins (GRMs) of state oil refiners, but there are no official numbers available, said Swarnendu Bhushan, co-head of research at Mumbai-based brokerage Prabhudas Lilladher.

The refiners are securing 20-30 per cent of their crude oil imports from Russia, he added. The contribution accounted for around 15 per cent of the average GRMS posted in the nine months to December 2023.

"The increase in GRMs in recent quarters (compared to the 2021-22 level) can mainly be attributed to lower cost of crude oil procurement from Russia," said Sehul Bhatt, director, research, CRISIL Market Intelligence and Analytics. "Based on data available for 2022-23 and 2023-24 (April-January), the average realisation on Russian crude stood at 14 per cent, against average Indian import realisations (excluding Russia) of 11 per cent. It reduced India's crude import realisations by more than $2/bblin the past two years."