Russian oil imports sweeten as low-sulphur grades drive growth

The share of Urals, which accounted for close to 80 per cent of India’s Russian oil imports in January, contracted to 70.7 per cent in March. India imported a total of 1.65 million barrels per day (bpd) of Russian oil in March, which included 1.16 million bpd of Urals crude. In all, Russia again topped the list of crude suppliers to India in March with a 34 per cent share in the latter’s oil imports of 4.85 million bpd. In February, India had imported 1.62 million bpd of crude from Russia and Urals’s share was 75.5 per cent. In January, Urals made up for 79.6 per cent of 1.26 million bpd of Russian oil imported by Indian refiners.

Import of the relatively sweeter ESPO blend increased substantially in March vis-à-vis January and February. In March, ESPO blend had a share of 5.6 per cent in India’s import of Russian oil, up from 0.4 per cent in January and 0.2 per cent in February. March also saw Indian refiners importing two more sweeter grades–Novy Port Light and Siberian Light–which did not feature in the import basket in the preceding two months. Europe was a major market for these two grades but with the European Union shunning Russian seaborne crude, they are finding their way to willing buyers like India and China.

“Refiners’ purchases of medium-sour Russian Urals have remained steady in March, and the increase in imports are attributed to higher purchases of sweeter grades like Novy Port Light. The plateauing of India’s imports of Russian Urals could indicate a soft limit on its ability to take in more sour crude, given its need to fulfil its term contracts with Mideast Gulf producers. But domestic refiners do have room to increase their purchases of sweeter grades,” Vortexa’s head of APAC Analysis Serena Huang said.

Traditionally, West Asian nations have been major suppliers of sour crudes to India, and a significant share of these supplies are under annual term contracts that have minimum purchase commitments. However, most of the Russian oil being bought by Indian refiners is through spot purchases. Theoretically, this means that the extent to which Urals can replace other sour crudes is limited by minimum offtake commitments under term contracts with other suppliers.

Sour crudes have high sulphur content, which makes the refining process complex and relatively more cost-intensive than refining sweeter grades of oil. However, sour crudes are usually cheaper than sweet crudes and newer and high-complexity refineries are equipped to process them. Older Indian refineries may not be able to process sour crudes but newer units and those that have been upgraded over the past few years can process sour crudes and blends of sweet and sour crudes. In the Indian Crude Basket, which represents a derived basket of sour grades and sweet grades as per Indian refineries’ processing of crude, the ratio of sour grades to sweet grades is 75.62 to 24.38, respectively.

With increasing volumes of sweeter Russian grades now being imported into India, even older Indian refineries that use sweet grades as feedstock can process discounted Russian oil. In fact, Russian oil major Rosneft and India’s largest refiner Indian Oil Corporation Ltd signed a pact to increase the latter’s purchase of Russian oil and also diversify to include more grades of crude.

Indian refiners started snapping up Russian oil, which was available at a discount in the wake of Moscow’s invasion of Ukraine last year. The rapid ramp-up in Indian refiners’ purchases of Russian oil resulted in Moscow emerging as New Delhi’s largest supplier of crude within a few months, displacing heavyweights like Saudi Arabia and Iraq. Prior to the war in Ukraine, Russian oil was a non-entity in India’s crude oil imports. Even in March last year, immediately after Russia’s invasion of Ukraine, Russian crude accounted for a mere 1.6 per cent of India’s total oil imports. The rapid expansion in oil trade between India and Russia has contributed to the latter emerging as one of New Delhi’s top trade partners.