Russia Price Caps Spur India Interest In Naphtha, Fuel Oil, But Not Diesel

More Indian firms are attracted to buying Russian naphtha as low-cost feedstock for their refineries and petrochemical plants after price caps imposed by Western nations, six refining sources said.

Prices for refined products such as naphtha and fuel oil are capped at $45 a barrel by the Group of Seven nations, the European Union, and Australia in a scheme aimed at curbing Moscow funding its war against Ukraine.

By comparison, Singapore naphtha traded at $80.03 a barrel on Tuesday on a free on board basis.

The price cap was implemented along with an EU ban on Russian oil products imports on Feb. 5.

India's interest in ramping up Russian oil products imports comes after the world's third largest crude importer became Moscow's top oil client after China as the West shunned supplies from Moscow. Cheap Russian crude has shaved costs at Indian refiners and boosted margins.

Reliance Industries Ltd., the owner of the largest refining complex in the world, boosted its imports of Russian naphtha imports in February to about 222,000 tonnes, ship tracking data from Refinitiv showed.

Reliance began importing Russian naphtha in September and by the end of January had shipped in about 217,000 tonnes, the data showed.

Reliance, already India's largest buyer of Russian naphtha and fuel oil, would consider increasing imports further, one of the sources said.

Its Russian fuel oil imports are set to triple a record of around 4.8 million tonnes between April 2022 and Feb. 2023, the first 11 months of this financial year, from about 1.6 million tonnes in 2021/22, Refinitiv Eikon data showed.

State-owned refiners Bharat Petroleum Corp. and Indian Oil Corp., which have petrochemical facilities, are also looking for opportunities to buy Russian naphtha, sources said.

"So far there is no offer made to us for Russian oil. It is early days..we will definitely buy Russian naphtha if we get it at cheaper rate," said an official at one of the state refiners.

Haldia Petrochemicals Ltd would also consider buying Russian naphtha if the quality and cost are suitable for its plants, two sources at the company said.

Reliance, IOC, BPCL and Haldia Petrochemicals did not respond to Reuters' emails seeking comment.

The G7 price caps prohibit Western insurance, shipping and other companies from financing, insuring, trading, brokering or carrying cargoes of Russian crude and oil products unless they were bought at or below the set price caps.

NOT DIESEL

However, Indian refiners are unlikely to purchase Russian diesel as import costs are high after adding $10–$15 per barrel in freight and insurance costs to the $100 price cap for the fuel.

Asia's benchmark 10-ppm sulphur gasoil prices were at $110.57 a barrel on Tuesday.

There is also a windfall tax on diesel exports which makes re-exports uneconomical.

"As there is no shortage of diesel in India, any diesel imports from Russia will boost India's exports, and exports will be charged with the windfall tax," one refinery executive said.

Unlike naphtha that is imported by some refiners and petrochemical makers, India is self-sufficient in diesel production as most refiners are traditionally geared to maximise gasoil output.

"Due to its proximity to both Russia and Europe, we believe the Middle East is the best region for Russian diesel imports," the refinery executive said.