Russian Oil To India May Boost By OPEC Drive For Higher Prices

Russian crude is rising as a result of the efforts made by OPEC and its allies to increase oil prices, which has India's banks concerned that shipments may go over the $60 per barrel threshold. According to a refinery executive who wanted to remain anonymous because he isn't authorised to talk publicly and is involved in arranging financing for the company's Russian oil purchases, refiners have been advised by State Bank of India and Bank of Baroda that payments for oil purchased above the limit will not be processed. According to executives, banks in the South Asian country are paying greater attention to prices at loading ports before adding shipping and logistics fees. Requests for comment from State Bank of India and Bank of Baroda spokespeople were not immediately fulfilled.

After most other countries avoided buying Russian crude as a result of the invasion of Ukraine, India and China emerged as the two largest consumers. Taking advantage of the lower prices, the South Asian country bought unprecedented numbers of barrels from Russia, surpassing Iraq and Saudi Arabia as its top suppliers.

While banks are requesting information on so-called free-on-board prices in order to ensure that they fall at, or below, $60 per barrel, India imports Russian oil on a delivered basis that accounts for shipping and other costs. They are exempt from sanctions imposed by the European Union, which prohibit using shipping, banking, and insurance services provided by EU members, at that level.

Despite the limited options, Russia can still transport and sell oil at any price if it chooses not to use the services and boats of the G-7 and EU. Markets were startled earlier this month when OPEC+ unexpectedly slashed production. The worldwide standard, Brent, rose by as much as 8% in the wake of the action and has continued to rise ever since, topping $87 per barrel on Thursday.

Russian crude currently trades below Brent, but the refinery executive predicted that if the price of the benchmark rose above $95 a barrel, it would push the price of oil from the OPEC+ producer past the cap. Another executive at a refiner in Mumbai suggested that businesses use other Indian banks that have limited exposure to the outside world and are willing to execute payments without worrying about upsetting the US.

The negotiation of long-term supply agreements with Russian suppliers may be made more difficult by the increase in oil prices. Rosneft PJSC and Indian Oil Corp., the largest state-run refiner in the country, have already signed a contract, while other smaller processors are having trouble reaching an agreement.

According to Serena Huang, an analyst at Vortexa Ltd., if crude trades above the cap, fewer ships may be prepared to deliver cargo, which would restrict Russian flows to India. According to Huang, a smaller fleet would also result in higher freight costs and less favourable economics.