Breaking down Reliance's MEGA DEAL for Russian Oil
While Reliance’s deal for Russian oil is a massive one, the incremental difference is not really as big as it is being made out to be 🙏🙏
While Reliance’s deal for Russian oil is a massive one, the incremental difference is not really as big as it is being made out to be 🙏🙏
Data is what one should look up to in such cases. Let me explain in depth.
Six months ago, Reliance had signed a deal with Russian oil-producing giant Rosneft.
Under that deal, Reliance had committed to buy 3mn barrels of Russian oil from Rosneft every month, for which payment would be made in roubles
But, many missed the fact that this totalled to about 1L barrels a day, which was ~25% of what Reliance was anyways importing from Russia
Thus, in effect, what Reliance really said was that it would pay for ~25% of what oil it buys from Russia in Russian currency.
However, from January to October, Reliance’s daily imports of Russian oil have remained at an avg 4L barrels a day.
And this is where the new deal comes in, wherein Reliance has sealed a pact to buy 5L barrels a day of oil from Rosneft.
This in effect means it has raised the sourcing from Russia by just 20% 🙏🙏
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The major element of the deal is therefore not the amount of oil being purchased. Rather, the biggest takeaway is the term of the deal - 10 long years!
Thus, it would have received bigger than usual discounts for such a long and committed buying agreement
And that should interest any Reliance shareholder or tracker. Not that big number of 5L barrels a day, which is being floated around
Cuz, Reliance was anyway buying ~80% of that for a long time now.
Meanwhile, there is something else to watch out for.
Indian state-owned oil giants (IOCL, BPCL and HPCL) have been in talks to sign a similar long-term sourcing deal with Rosneft.
If and when that’s signed, it will be the first time that the three giants would be signing a joint oil purchase agreement.
And this deal, unlike Reliance one, will benefit the masses of the country more 🙏🙏
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Why do I say that?
Much of Reliance’s oil refining capacity is export-focused, and thus while its use of cheaper Russian crude helps improve its export earnings and enriches the Govt tax coffers, it does not help bring down the cost of petrol and diesel for the likes of us.
But, when it comes to IOCL, BPCL and HPCL, almost none of their refining capacity is export-focused. Thus, much of the discounted Russian oil will either improve their margins. And that shall have two benefits.
It could as usual be passed on to tens of lakhs of shareholders as dividends (which Reliance does not pay a lot of), which will benefit a lot of people
It could create room for the Govt to cut petrol and diesel prices for the masses
Thus, that is the deal which I am eagerly waiting for. Did you know about this?
Best,
Jayant Mundhra