Indian buyers, who have been major buyers of cheap Ural crude since the invasion of Ukraine, say Russian barrels remain one of the most affordable options despite shrinking discounts to global standards. and that it does not intend to turn its eyes away from Moscow.
India’s consumption of Russian crude has surged since last year, pushing Saudi Arabia and Iraq out of the top spot and making India a major supplier. Much of that is likely due to prices and Prime Minister Narendra Modi’s efforts to curb energy inflation, but those dynamics are shifting. Earlier this year, the gap between Russian crude and Dubai benchmark crude was about $20 on a delivery basis. Currently, Ural freight discounts are close to $8. Price data from Argus Media Ltd. Ural crude shipped to India’s west coast is believed to have topped $81 a barrel on Aug. 4, down from about $68 a barrel the previous month.
Still, officials at four of India’s largest refiners said they would continue to buy Russia’s flagship Ural blend, arguing that similar quality barrels from the Middle East are still significantly more expensive. They asked not to be named because the information is private. This means India is buying more Ural barrels than many expected.
Samiran Chakraborty, chief economist for India at Citigroup, said: “India’s limited refining capacity for Russian medium-acid crude is likely to create a natural cap on imports from Russia. “This is now clearly proven,” he said. There are no such bottlenecks. This means Indian refiners can continue to import oil from Russia as long as the rebates outweigh the rising logistics costs associated with imports. ”
Geopolitics are unlikely to change the situation unless the current conflict escalates and disrupts supplies.
Refinery executives have largely remained calm about the drone strike on a Russian-flagged oil tanker. South Asian buyers have now been alerted to supply risks, said Viktor Katona, lead crude analyst at data intelligence firm Kpler, but they are also protected from the higher cost of freight and insurance, as the structure of India`s oil trade means those are covered by sellers of Russian crude.
Even increased trading headaches and scrutiny as Urals last month broke through the $60-a-barrel set by Western nations to curb Moscow`s revenue haven`t put off Indian processors — and won`t, while they can book vessels and settle payments, the refinery officials said.
“As long as there is any discount on Russian crude versus comparable grades on a landed basis, there will be demand for it in India,” said Vandana Hari, founder of Vanda Insights in Singapore. “If Urals is being assessed only slightly above the $60 cap, it may not be a deal-breaker for Indian refiners as long as the intermediaries can provide an undertaking to Indian banks, if needed, that the free-on-board price paid for the cargo was below the cap.”.
A simple screwdriver remains the same price. According to official figures, the average cost of landing Russian oil, including cargo, on Indian shores in June was $68.17 a barrel, the lowest since Moscow invaded Ukraine. In contrast, shipments from Saudi Arabia totaled $81.78.
Oil futures are now trading near nine-month highs on tight supplies as Saudi Arabia and Russia extend their self-imposed restrictions until September. For this reason, while the spot market in Asia appears to be doing well, demand is increasing in the world oil market for the Ural medium-acid crude oil, which is muddy and has a high sulfur content. Strong earnings from producing fuel from crude oil are also offsetting rising oil costs, officials said. Refining margins across Asia have more than tripled since early July, according to Bloomberg Fair Value.
Indeed, Kpler said Russia’s crude oil imports have fallen from record highs in recent months and are expected to fall further, but this is partly due to seasonal effects, especially the monsoons, when demand usually falls. It is said that there is Recovery is likely to continue.
“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. “We expect a large influx of Russian cargo into India from October.”
