On Wednesday, a report by Reuters said that Russia has emerged as the top oil supplier for India for second month in a row. It has replaced Iraq to be India’s No. 1 supplier in November as refiners snapped up oil fearing a price cap could hit supplies and choke payment avenues.
Data cited by Reuters from trade sources showed that India’s oil imports from Russia rose for the 5th straight month, totaling 908,000 barrels per day (bpd) in November. This was 4% higher than oil import from Russia in October.
In fact, Russian oil accounted for about 23% of India’s overall import of about 4 million bpd oil in November.
Price cap led to increased flows
The European Union imposed a ban on import of Russia’s seaborne oil from December 5. This has forced Moscow to seek alternative markets for its crude, especially in Asia, for about 1 million barrels per day.
In addition, the Group of Seven (G7) leading economies also implemented a $60 price cap on Russian seaborne oil in a bid to limit Moscow’s ability to finance its war in Ukraine.
The Western actions have left Russian producers in fierce competition with each other and with suppliers from Asia, Europe and the Middle East, meaning their best hope of finding buyers is to lower prices.
The EU, being its closest oil market, took roughly half the country’s supplies at the start of this year. However, the import ban and price cap have halted seaborne flows of Russian crude to the bloc.
According to a report by Bloomberg, the crude shunned by Europe has been diverted to Asia, with a flotilla of tankers steaming around the continent and through the Suez Canal to deliver cargoes to India and China.
The flow swelled to more than 3 million barrels a day in the week to December 9, accounting for 89% of all the crude shipped from Russian ports during the week.
Crude shipments on vessels showing no final destination, which typically end up in either India or China, jumped to more than 2.5 million barrels a day. While the volumes on vessels signaling Indian or Chinese ports as their destination were little changed from the previous week, the number of ships showing destinations as either Port Said or Suez soared to the equivalent of almost 800,000 barrels a day on a four-week moving average basis.
India buying below price cap
The ban on Russia’s flagship Urals crude has made India the dominant buyer which bought barrels at well below the prices cap of $60 imposed by the West.
According to a Reuters report, for some deals this month, the price for Urals in Indian ports, including insurance and delivery by ship, has fallen to around minus $12-$15 per barrel versus a monthly average of dated Brent, down from a discount of $5-$8 per barrel in October and $10-$11 in November.
The discounts mean oil is in some cases being sold at below overall production cost including local levies, Reuters said quoting industry sources.
The report further said that discounts for Urals oil at Russia’s western ports for sale to India under some deals have widened to $32-$35 per barrel when freight is not included in the price.
The value of the Dated Brent benchmark hovered below $80 a barrel early in December, while the estimated cost of Russian oil for producers including extraction, tax and transport costs to export ports stood around $15-45 per barrel, deputy energy minister Pavel Sorokin said last year.
Russian oil suppliers are trying to handle Urals oil transport to India themselves using their own vessels and shipping partners, which can reduce transport costs, traders said.
Urals supplies to India in November rose to at least 3.7 million tonnes and reached a record 53.2% of overall grade’s loadings via sea ports last month, Refinitiv Eikon data showed.
Russia bags top spot
India, the second largest consumer of oil in Asia, is better located to buy Urals than China because of a shorter transport route, and its refineries are well-suited to processing Russian oil.
In addition, New Delhi recognise ships and insurance cover provided by the Russian entities, which are no longer recognised in Europe.
As a result, Russian oil accounted for about 23% of India’s overall import of about 4 million bpd oil in November.
Last month India’s oil imports from Iraq declined to the lowest since September 2020, while that from Saudi Arabia plunged to a 14-month low, the data showed.
Indian refiners that were initially wary of placing orders for Russian crude for loading post Dec. 5, have resumed purchases from Moscow as sanctions allow direct payment for Russian oil, sources said.
Higher purchases of Russian oil dragged down Indian imports from the Middle East and member nations of Organization of Petroleum Exporting Countries (OPEC) declined to the lowest ever in November, the data showed.
During April-November, the first eight months of this fiscal year, Iraq continued to be the largest oil supplier to India followed by Saudi Arabia and Russia, which has knocked down UAE to the fourth position.
Overall imports fall
Despite increased flow of Russian crude into the country, India’s overall oil imports in November declined by 11% as compared to previous month.
India imported 3.98 million barrels per day (bpd) of oil in November as Russia-backed Nayara Energy cut purchases due to maintenance shutdown of its 400,000 bpd Vadinar refinery in the west coast.
Reliance Industries, operator of the world’s biggest refining complex, reduced its monthly intake of Russian oil imports in November by 26.2% to about 144,000 barrels per day (bpd), a Reuters report showed.
Reliance’s overall import stood at 1.1 million barrels per day (bpd) oil in November, down 4% from prior month, the data showed.
Like other Indian refiners, Reliance has significantly increased processing of discounted Russian oil after some Western companies and countries shunned purchases from Moscow following its invasion of Ukraine. The private refiner last month significantly raised imports of Kazakhstan’s CPC Blend.
‘India will continue to look for best deals’
India has maintained its stance that domestic refiners will continue to look for the best deals in the interest of the country.
External affairs minister S Jaishankar, last week, had told the Rajya Sabha that India does not buy oil from just one country, but multiple sources.
“We do not ask our companies to buy Russian oil. We ask our companies to buy oil (based on) what is the best option that they can get. Now it depends on what the market throws up,” he said while replying to clarifications sought by MPs on his suo moto statement on foreign policy.
The companies will go after sources that are more competitive, Jaishankar added.
“Please do understand it’s not just we buy oil from one country. We buy oil from multiple sources, but it is a sensible policy to go where we get the best deal in the interests of the Indian people and that is exactly what we are trying to do,” he had said.
On price caps, Jaishankar said the impact of the move was not very clear to India yet.
“Our concern is really what would it do to the stability and the affordability of the energy markets, that is a concern,” he had said.
(With inputs from agencies)