What the Rosneft-Reliance giant supply deal means for oil markets

Just as the European Union announced its 15th package of sanctions on Russia, mostly targeting the country’s shadow fleet, the largest Russian oil firm Rosneft has reportedly clinched one of the biggest crude supply deals in recent history. The new Rosneft-Reliance deal is set to be signed for 10 years, as opposed to the previous one-year contracts and stipulates that deliveries could go all the way up to 500 kbd, fivefold the volume of this year’s outgoing term contract. Let's look into some of the main ramifications of this unusually ambitious deal.

Market & Trading Calls

• Bullish on Russian crude flows to India: With the Rosneft-Reliance deal scaling up to 500 kbd, the current export rate of 1.7-1.8 Mbd becomes the new base case with higher seasonal upside.
• Bearish for Middle Eastern grades: Increased Urals volumes could squeeze out Middle Eastern crude from Reliance's Jamnagar refinery slate, particularly if AXL or Murban start to appreciate again.
• Stable Urals pricing outlook: The medium sour grade's discount expected to trend at -$3/bbl to Dubai through 2025.
• Intra-Indian reallocation of Russian flows underway: Lukoil and Surgutneftegaz may redirect spot Urals and CPC cargoes to other Indian (non-Reliance) refiners.

Down with the intermediaries. In the early days of G7 sanctions, Rosneft behaved as an atypical state oil firm in that it possessed comprehensive trading capabilities within its own infrastructure, however it often relied on trading intermediaries that cut into its overall profits. The gradual drive to weed out intermediaries seems to have culminated in the Reliance deal, effectively allocating half of Rosneft’s Urals exports to one single buyer and easing the marketing pressure for the remaining volumes. Moreover, Rosneft co-owns the 400 kbd Nayara Energy refinery in Vadinar, supplying 240 kbd of Urals this year.

It seems to be quite unlikely that Rosneft would abandon such a high-value asset, which would mean that Reliance and Nayara combined will total 750 kbd of Urals flows just from Rosneft alone in 2025. For Reliance, too, the giant deal could provide a brief peek into the company’s internal operations. The Middle Eastern markets were confounded by Reliance’s initial moving of its crude trading team to Dubai, only to overturn that decision within a couple of months and move back to Mumbai. Considering the Rosneft deal alone covers almost half of Reliance’s crude oil needs, it was deemed too costly for maintaining a trading department outside of India, effectively reducing a lot of previous responsibilities.

Reliance seaborne crude imports by country of origin, kbd.

Source: Kpler.

Reconfiguration of the Indian market. Zooming in on flows from Russia to India, the inevitable question is whether Reliance would continue to purchase non-Rosneft volumes of Urals or ESPO, as it has been doing this year with Lukoil and Surgutneftegaz totalling 130 kbd in deliveries. Were Lukoil to see limited opportunities to place its Urals or even CPC Russia cargoes in Jamnagar, it would most probably seek to get more traction with BPCL, ONGC or even HPCL (which is expected to ramp up imports anyway because of the Visakhapatnam expansion finally maturing). The ‘known unknown’ will be India’s largest state-owned refiner IOC which bought a whopping 75 cargoes of Urals, ESPO and Sokol from Rosneft in all of 2024. Most probably it would seek to find new sellers to cover its Urals needs, perhaps the abovementioned Lukoil and Surgutneftegaz, i.e. Russian exporters that actually prefer spot deliveries over term ones.

Little volatility in spot pricing. The previous Rosneft-Reliance supply deal which fixed Urals pricing at a -$3/bbl discount to Dubai has anchored most of the medium sour grade’s pricing for 2024. Changes were minimal, oscillations in freight costs notwithstanding, and for more of the year delivered prices of Urals were hovering between -$3 and -$4/bbl vs the Middle Eastern benchmark. Whilst it has been highlighted that the Reliance deal allows for an annual recalibration of pricing and volumes, the upcoming year is unlikely to see any major change. Hence, we believe Urals’ landed prices to India (which in turn informs other directions such as Turkey or China) will continue to hover around a -$3/bbl discount to Dubai for other spot buyers as well.

Bad news for Saudi Arabia. In 2024 to date, Reliance has imported 420 kbd of Russian crude, most of which was medium sour Urals. That said, the incoming volumes of Urals – 320 kbd – are lower than the volumes that could be nominated by India’s top private refiner next year, increasing the likelihood that there would be further squeezing out of Middle Eastern grades. Interestingly, most of Saudi Arabian exports lately have been coming from Arab Extra Light, lightening up Jamnagar’s slate amidst continuous inflows of Urals and Basrah Heavy. The Reliance contract reportedly fixes the premia of ESPO and Sokol to Dubai at $1.50/bbl and $2.00/bbl, respectively. Considering that the January OSP of Arab Extra Light was set at a $0.90/bbl premium against Oman/Dubai, the difference between Russian light grades and Middle Eastern ones is not even that tangible. However, the big challenge for Saudi Arabia would come from the side of Murban, which thanks to its being exchange-traded could become the new favourite to lighten up Reliance’s heavy slate.

Want access to Insights on a regular basis?

Through unbiased, expert-driven research and news, you’ll receive valuable information on supply, demand, and market movements, enabling you to make informed trading and risk management decisions.

Unbiased. Precise. Essential.

Curious? Request access to Kpler Insight today.