India reaps maximum benefits from sanctions against Russian oil

By K Raveendran

India is leading the switch in Russia’s crude oil flow, hit by sanctions in the wake of the country’s invasion of Ukraine, from its traditional market of Europe to Asia.

According to the latest estimates available from Rystad, India’s imports of Russian Ural oil have increased more than six-fold in the four months since the start of the Ukrainian invasion compared to 2021, while the increase for China is twice that. as last year. For Asia as a whole, the increase in Russian crude oil is about three and a half times greater.

India’s lead in imports from the Urals is clearly dictated by the attractive margin of Russian crude compared to Middle Eastern grades, which have traditionally been the country’s staple. Because Urals have a similar profile to Middle Eastern oils and have a favorable lower sulfur content, Indian refineries have exchanged Middle Eastern crude for Urals for their refinery processing. According to Rystad, as long as the Ural discount is maintained, it will have a huge margin advantage over alternative crudes, meaning Indian refiners are likely to maximize Ural imports.

Since European refineries began eschewing Russian oil in late February, Russian crude oil imports to Europe fell by more than half a million barrels per day between March and May, from 2.04 million barrels per day to 1.49 million barrels per day. On the other hand, oil imports of Russian origin from Asian refineries, including those in China, saw a corresponding half-million bpd increase from the January-February 2022 average of 1.14 million bpd to the March-May average. of 1,517 million bpd.

The expectation that Russian crude would no longer be traded in international markets has not materialized, and instead, the steep discount on Russian crude has resulted in ships being diverted to alternative markets. While the cost of financing these ships and transactions has risen significantly due to the freezing of the Western financial system, the discount on the Urals is too attractive for some refiners to ignore. As with Iranian oil in the past, once Russian crude is refined, it will become nearly impossible to distinguish between those barrels and others when they re-enter the international market.

Historically, India has taken very little Russian oil off, but the war in Ukraine and the oil embargoes of Russian origin by the European Union have led to a rebalancing of oil trade flows, with crude oil of Russian origin being diverted from Europe to India and China . Discounts on Russian-origin crude oil must remain high to provide an attractive refining margin, on top of the high insurance and freight costs associated with purchasing and shipping Russian-origin crude. According to Rystad, for now, it is purely economic for Indian and Chinese refineries to import more crude oil of Russian origin for processing, as such oil is cheap and offers one of the highest margins for crude refining compared to other crudes. Keeping track of what happens to Russian crude will be a challenge as Europe may eventually import India’s petrol, diesel and other products blended with Russian Urals, Rystad experts say.

Outside the European Union and the US, refining capacity has grown mainly to meet rising domestic demand, although the pandemic has severely impacted the pace of additions as many refinery projects in the Middle East, Africa and Asia report delays due to supply chain and resource issues.

In general, refining costs have risen, in addition to inflated gas, hydrogen and utility costs. For example, as demand has recovered, a limited refining system has resulted in precariously lower days of supply coverage in most countries. Many have mandated higher days of inventory coverage, making it difficult to resolve regional product imbalances with trade flows.

Developments in the crude oil market point to significant room for relief for fuel consumers in India as a dangerous price rise has slowed down amid fears of a recession triggered by the central bank tightening and Chinese lockdowns, affecting consumption prospects. Oil futures are trading at about $110 a barrel, down from a recent high of $123. The downward move was also helped by the Biden administration’s decision to add more strategic releases from US stock. (IPA service)

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