Indian buyers, key consumers of cheap Urals crude since the invasion of Ukraine, have no plans to move away from Moscow even if the discount to global benchmarks narrows, arguing that Russian barrels remain one of their most affordable options.
India’s consumption of Russian crude has soared since last year, with the country becoming a leading supplier, knocking out Saudi Arabia and Iraq from the top spots. Much of this has been driven by price, and by Prime Minister Narendra Modi’s efforts to control energy inflation, but that dynamic is changing. At the start of this year, the spread between Russian crude and the Dubai benchmark stood at around $20 per delivery. Today, the discounts offered for Ural cargoes are closer to $8.
Pricing data from Argus Media Ltd. put Urals crude for delivery off India’s west coast above $81 a barrel on Aug. 4, compared with about $68 a month earlier.
Still, officials at four major Indian refiners said they would continue to buy Russia’s flagship Urals blend, arguing that barrels of similar quality from the Middle East remain significantly more expensive. They asked not to be identified because the information is private.
This means that India is buying more Urals barrels than many expected.
“There was a perception that India had limited capacity to refine Russian medium-grade crude, which would create a natural ceiling on Russian imports,” said Samiran Chakraborty, chief India economist at Citigroup Inc. “It has now been clearly demonstrated that such a bottleneck does not exist. This would imply that Indian refiners can continue their imports of Russian oil as long as the discounts outweigh the higher logistics cost of imports.”
Absent an escalation of the current conflict that hampers deliveries, geopolitics is unlikely to change the picture.
Refinery executives largely rejected a drone strike on a Russian-flagged oil tanker. South Asian buyers have been alerted to supply risks, said Viktor Katona, principal crude oil analyst at data intelligence firm Kpler, but are also shielded from the higher cost of freight and insurance , as the structure of India’s oil trade means they are hemmed in by sellers of Russian crude.
Even increased trade headaches and scrutiny when the Urals last month breached $60 a barrel set by Western nations to curb Moscow’s revenue haven’t deterred Indian processors, and won’t, while they can book ships and settle payments, the refinery. officials said.
“As long as there is a discount in Russian crude compared to comparable onshore grades, there will be demand in India,” said Vandana Hari, founder of Vanda Insights in Singapore. “If Urals is valuing only slightly above the $60 mark, it may not be a deal breaker for Indian refiners, as long as intermediaries can pledge to Indian banks, if necessary, that the free price on board paid. cargo was under cover.”
The simple driver remains price. According to official figures, in June the average cost of landing Russian crude on Indian shores, including freight, was $68.17 a barrel, the lowest since Moscow’s invasion of Ukraine. This compares to shipments from Saudi Arabia, which totaled $81.78.
Oil futures are currently trading around a nine-month high on tight supply, with Saudi Arabia and Russia extending their voluntary curbs until September. That has global oil markets eager for muddier, more sulphurous medium-acid crude similar to Urals grade, at a time when the Asian physical market also looks strong.
Strong returns from crude oil fuel manufacturing are also offsetting rising crude costs, officials said. Overall Asian refining margins have more than tripled since early July, according to Bloomberg Fair Value.
Of course, Russian crude import volumes have fallen from their all-time highs in recent months and are expected to decline further, according to Kpler, but this is also due to seasonal impacts, specifically the monsoon, when demand typically falls. . A rebound is expected.
“For China, there is a buyer’s dilemma between Iranian and Russian oil. But for Indian refiners, Russian crude is by far the cheapest option,” Katona said. “Expect a deluge of Russian cargoes in India from October”.
–With the help of Jack Wittels.
