Record Urals volumes boost India’s Russian oil imports in July

Urals, which is a medium-sour crude, has been the mainstay of India’s Russian oil purchases. However, its price recently breached the price cap imposed by G7 countries and the discounts being offered by Russian oil exporters have eroded substantially, which could have a bearing on India-Russia oil trade, which has been booming since Moscow’s February 2022 invasion of Ukraine.

Russia began offering deep discounts on its oil exports as major Western economies started weaning themselves off Moscow’s crude. Indian refiners lapped up the opportunity, snapping up the discounted barrels in huge quantities, resulting in Russia emerging as India’s largest source of crude. From a share of less than 2 per cent in India’s oil imports prior to the war in Ukraine, Russian crude now accounts for over 40 per cent of Delhi’s oil import pie.

“With Russia cutting crude production and ramping up its refinery runs to meet domestic demand, the country’s crude exports have expectedly reduced. Exports in July are down by almost 650,000 bpd from the peak seen in April/May,” said Serena Huang, head of Asia-Pacific analysis at Vortexa. Huang expects Russia’s crude exports to decline more in August if its domestic refiners further ramp up production.

It is worth noting that Russian oil usually takes about a month to be delivered to India, which means that the impact of a fall or increase in Russian oil exports reflects about a month later in India’s oil imports. Therefore, lower exports in July would only reflect in India’s oil imports in August and even early September.

According to Huang, while lower Russian oil exports might result in reduced supplies to India, there are ways to prevent a slide in volumes. But that would require Indian refiners as well as Russian oil exporters to work closely and show some flexibility.

“India could compete against China and maintain their import volumes at the expense of China’s share by offering more attractive bids. In recent weeks, Russia has reportedly cut back on its Urals discounts to Brent for Indian refiners, which has reduced Urals’ attractiveness against rival Middle Eastern grades. This has been a strategic move by Russia given limited alternative medium-sour crude suppliers…But cognisant that India (and China) remain key outlets for its crude, Russia will likely keep its crude attractively priced, but narrow the discounts relative to previous months,” Huang said.

Sources in the Indian government have indicated that public sector refiners are looking to increase oil purchases from their traditional West Asian suppliers of crude oil, particularly Iraq, given the significant decline in discounts offered by Russia on its oil and the likelihood of payment-related complications if Urals is to be bought at over $60 per barrel. While Russia may not be too keen on it, analysts do expect Indian refiners to use the rise in price of Russian oil and the G7 price cap as leverage to negotiate deeper discounts with Moscow, given New Delhi’s newfound position as the biggest buyer of seaborne Russian crude.

India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country’s cumulative refining capacity stands at around 5.3 million bpd.