Russian oil to India may be hit by OPEC+ drive for higher prices

Russian oil to India may be hit   by OPEC+ drive for higher prices

New Delhi: The drive by OPEC and its allies to boost oil prices is lifting Russian crude along with it, prompting concerns from India’s banks that cargoes could breach the $60-a-barrel cap.

State Bank of India and Bank of Baroda informed refiners they will not handle payments for oil bought above the limit, said a refinery executive involved in seeking financing for the company’s Russian oil purchases, who asked not to be identified as he isn’t authorized to speak publicly. Banks in the South Asian nation are keeping a closer watch on prices at loading ports, before shipping and logistics costs are added, executives said.

Spokespeople at State Bank of India and Bank of Baroda didn’t immediately respond to requests for comment.

India, along with China, emerged as key buyers of Russian crude after most others shunned its supplies following the invasion of Ukraine. The South Asian nation has taken advantage of cheaper barrels, purchasing record volumes and elevating Russia to its top supplier above Iraq and Saudi Arabia, Bloomberg reported.

While India imports Russian oil on a delivered basis that takes into account logistics and other costs, banks are demanding details on so-called free-on-board prices to ensure they fall at, or below $60 a barrel. That level exempts them from European Union sanctions which ban the use of shipping, banking and insurance from members of the bloc. Russia can still transport and sell oil at any price if it doesn’t use G-7 and EU services and vessels, though that provides fewer options.

OPEC+ jolted markets earlier this month after announcing a surprise production cut. Brent — the international benchmark — surged as much as 8% following the move and has edged higher since, trading above $87 a barrel on Thursday.

Russian crude trades below Brent, but should the benchmark rise above $95 a barrel, it will pull prices of oil from the OPEC+ producer above the cap, the refinery executive said. Another executive at a Mumbai-based refiner said companies could look to utilize other Indian banks that have little overseas exposure and are willing to process payments without fear of upsetting the US.

The rise in oil prices may complicate the signing of long term supply deals with Russian suppliers. Indian Oil Corp., the nation’s largest state-run refiner, has already inked an agreement with Rosneft PJSC, but other smaller processors are finding contract negotiations hard going. Crude trading above the cap could lead to fewer tankers willing to transport cargoes, which would put a squeeze on Russian flows to India, said Serena Huang, an analyst at Vortexa Ltd.

A smaller fleet would also raise freight costs and make the economics less attractive, according to Huang.

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