Industry Odisha Bureau, Sep 29: Indian oil refiners are paying well above screen prices for physical crude. Brent spot averaged $12 over November futures between September 1 and 22. Executives blame constrained Gulf crude supply.
The oil price flashing across trading screens is not the price India’s refiners pay. Refiners buy physical cargoes, not futures quotations. Headline prices hovered around $108 a barrel on Monday. Yet physical crude trades higher than that headline price, industry executives said. The gap has widened sharply this month.
Physical Brent pulls away
Spot-price data from the US Energy Information Administration shows the scale. The EIA Brent spot price is a reference for the physical Brent market. That is where actual crude cargoes change hands. September 1-22 is the latest period with available EIA data.
Across those weeks, Brent spot averaged about $12 above November futures. On September 15, the spread reached as much as $22 a barrel. Spot exceeded futures by more than $15 on several days later in the period.
Gulf tightness tilts the market
Industry executives say futures do not capture conditions in the physical oil market. Suppliers are demanding crude oil premiums of up to $20 a barrel over futures, they said. That supplier premium is separate from the EIA spot-futures spread. Executives attribute the physical-market tightness chiefly to constrained Gulf crude supply.
Futures are not the refinery invoice
November Brent futures price a standardised contract for November delivery. That contract trades in the oil futures market. Most participants use such contracts to hedge or express a view on prices. Few use them to take physical delivery of crude. Futures therefore remain a vital benchmark for risk and expectations. But they are not what lands on a refiner’s invoice.
How a cargo gets priced
Refinery crude costs are linked to physical-market benchmarks. For most purchases, that benchmark is averaged over the crude’s loading month. The final price also carries a differential for the specific crude grade. Other contractual terms can shift the bill further.
Timing adds another layer. Crude purchase deals are typically struck about two months before delivery. A cargo bought in September, for example, may load in October. It could then reach the refinery in November. Its price may rest on the physical benchmark averaged across October. So the futures price on purchase day may differ from the final cost.
Why the gap matters
Higher physical-market prices feed directly into refiners’ procurement costs. This holds even when headline futures look calmer. A refiner cannot buy a cargo at the screen price. It pays what the physical crude trade demands, plus grade and contract adjustments. For India’s crude imports, screens alone cannot reveal refinery feedstock costs. The spot-futures spread is therefore a real cost signal for the refining sector.
One barrel, two price signals
Brent futures and physical benchmarks serve different purposes. Futures guide hedging and reflect forward expectations. Physical prices reflect what actual cargoes command. Both matter to anyone tracking oil prices in India. But refiners live in the physical market. While Gulf supply stays tight, that market can prove costlier than headline futures suggest.
