Russian Crude Oil
Crude oil coming from Russia has now become the biggest discounted commodity in the Asian market in the last one year. In a report by ET, quoting industry sources, it was said that for December delivery, this crude is getting a discount of up to $2 to $4 per barrel compared to Brent crude oil, which is considered to be a huge discount compared to previous years.
Although this is not as steep as the discount of about $8 per barrel at the time of the first sanctions imposed in 2022, this discount situation is clearly increasing pressure on Russia’s oil revenue sources.
Why did the discount increase – America’s pressure
This discount has increased recently because America has imposed new stringent sanctions on Russia’s major oil companies Rosneft and Lukoil. The US administration has given a deadline of November 21 to the institutions dealing with these companies to stop doing business with them.
In immediate reaction, India’s major refiners such as Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited, Mangalore Refinery and Petrochemicals Limited, HPCL‑Mittal Energy Limited and Reliance Industries Limited have stopped orders from Russia for December delivery. These companies handled about 65 percent of India’s Russian oil imports.
Similarly, China’s government oil companies have also reduced the purchase of oil coming via sea route from these major suppliers of Russia. This has rapidly changed the conditions for Russian crude oil in the Asia market.
Asia’s fragmented market
It was told in media reports that according to sources, Russian crude now remains a two-tier market in Asia. On one hand, there are barrels that are coming from restricted suppliers or ships and are being given huge discounts.
On the other hand, there are suppliers who are outside the sanctions and their barrels are being sold at good prices i.e. premium. In this way, Russia itself has been forced to play a two-sided game to sell its crude. There has been a sharp decline in the demand for Russian crude in India and a substantial reduction in imports is expected in December. This will affect Russia’s budget sources and oil revenues.
A moment of worry for Russia
This concessional status means for Russia that an additional financial challenge has arisen amidst the already increasing pressure on its oil sales. Russia is largely dependent on its oil revenues and selling crude at low prices means its budget resources could shrink. At the same time, analysts are warning that this trend could weaken Russia’s financial infrastructure.