BPCL and Rosneft are in talks to purchase oil at Dubai benchmark prices

Indian state-run refiner BPCL is in discussions with Rosneft to purchase roughly 6 million metric tonnes (43.8 million barrels) of discounted Russian oil at a price based on the Dubai benchmark. In the aftermath of Western sanctions on Moscow, the agreement would strengthen India's ties to its largest oil supplier. It would also signal Rosneft's sustained shift in pricing strategy away from Europe-dominated Brent and towards the Middle Eastern benchmark used in Asia.

The pending deal calls for Rosneft to supply Bharat Petroleum Corp Ltd (BPCL) with the equivalent of 6 to 7 cargoes each containing 700,000 to 720,000 barrels per month through March 2024. Negotiations for a contract are advanced, with both parties ironing out specifics including payment arrangements.

The third-largest oil importer in the world will receive more Russian oil under a contract, which must be approved by the board of BPCL. After diverting supplies away from Europe, Russia has surpassed Europe as India's major oil supplier, with a 40% stake. Due to high transit costs, Indian refiners, who had previously purchased little Russian oil, are now picking up discounted petroleum after some Western organisations and countries stopped buying from Moscow after its invasion of Ukraine.

The members of the European Union ceased purchasing Russian oil as of December 5, and the Group of Seven (G7) joined the EU in setting a $60 per barrel cap on the price of Russian petroleum to reduce Moscow's income. The price of the Russian crude sold to BPCL would be $8 a barrel less than the Dubai benchmark.

The nation's main refiner, Indian Oil Corp, and Rosneft agreed in April to a deal for up to 1.5 million metric tonnes of oil per month at a discount of $8 to $10 per barrel compared to the Middle Eastern benchmark. Rosneft has been steadily moving away from the Brent benchmark, which is controlled by Europe, since Russian oil sales have mostly migrated towards Asia after Europe shunned Moscow-sourced crude.

Both standards are set by S&P Global Platts, a division of S&P Global Inc. based in the United States, and are measured in dollars. While Brent is primarily used to price petroleum from Europe, Africa, and South America, the Asian and Middle Eastern oil markets have a significant influence on the price of the Dubai benchmark. Since the West imposed extensive sanctions, including an embargo on seaborne imports of Russian oil, Russia has been shifting its energy supplies away from traditional customers in Europe and towards Asia, primarily India and China.

Like the majority of Indian refiners, BPCL buys Russian oil on the spot, primarily via merchants. According to the proposed new deal, BPCL intends to import different Russian oil grades, including Sokol, Varandey, and Urals.