The cost of purchasing immediate crude oil for delivery has sharply declined across supply sources compared to March, potentially reducing losses at state oil marketing companies (OMCs).

Premiums paid to secure physical crude on a spot basis have crashed amid European crude oil benchmark Brent surging to around $125 per barrel, a four-year high.

The rise in Brent benchmark prices has been softened by reduced premiums, a senior refining official said.

Before the war in West Asia, which disrupted a fifth of global oil supplies, the gap between the price of spot crude and benchmark rates was narrow. The supply squeeze has made immediate oil needed for delivery expensive, refining sources said.

 Premiums on West African oil have dropped by more than half to the “low teens” — to $13 per barrel levels — calculated off Dated Brent and compared to $20-30 per barrel in March when the war disrupted global fuel supplies, two Mumbai-based traders said.

Before the war, the premiums hardly averaged a couple of dollars per barrel, and sometimes tipped into discounts, the traders said.

The premiums on Russian crude oil, which accounted for a record 45 per cent of India’s 4.45 million barrels per day (bpd) crude oil imports in March, have dropped to less than $5 per barrel, also calculated off Dated Brent on a delivered basis, compared to over $10 per barrel last month, according to two senior refining officials and calculations based on information from Kpler, an industry data provider.

These levels compare to discounts on Russian oil of $2-$4 per barrel last year.

The premiums have declined now because of supplies from alternative routes in West Asia and amid increased flows from Africa and Venezuela, the officials said.

US President Donald Trump waived sanctions on Russian oil for a month in March to increase crude oil supplies in the market after the war. The waiver has since been extended by another month until mid-May.

West Asia prices

India also expects Saudi Arabia to slash official selling prices for term contracts for June loadings after premiums rose to a record for May loadings, Saudi Aramco data showed.

Saudi Arabia was the second biggest supplier after Russia in April, shipping 700,000 bpd, data showed.

State-owned Saudi Aramco increased formula prices for India by $19.50 per barrel for Arab Light grade for May loadings compared to $2.50 per barrel for April.

Saudi Aramco prices its term contracts against a basket made up of 50 per cent Platts Dubai and 50 per cent Gulf Mercantile Exchange Oman futures.

The Platts Oman/Dubai benchmark, which was used to price West Asian varieties or over half of India's oil imports in February, has also normalised, the officials said.

 The benchmark was trading at $145-$160 per barrel levels last month, and has now settled down at rates comparable to or lower than Brent oil, the officials said.

India bought 3 million bpd of oil supplies in February from West Asia before the war. Most of these shipments came through the Strait of Hormuz, which Iran has blocked. The war has reduced supplies to 1.2 million bpd in March and 1.2 million bpd in April, Kpler data showed.

Crude oil pricing

Crude oil is typically priced off global benchmarks.

Dated Brent is the physical spot price for North Sea crude oil cargoes, representing immediate supply.

Brent Futures (ICE Brent) are exchange-traded, financially settled derivatives for future delivery. Dated Brent reflects immediate physical market tightness, while futures reflect long-term market expectations

West Asian grades are typically priced off Platts Dubai/Oman benchmark.

India’s crude oil imports in April at 4.45 million bpd were flat from March levels, and around 800,000 bpd lower than pre-war February, according to Kpler.

Source: Business Standard 

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