Oil imports rise: India defies sanctions with increased Russia crude purchases

The toughest US sanctions on Russian crude oil supplies proved inadequate to stanch India’s appetite for the discounted grades in January.

Increase in Russian Crude Imports

India increased imports of Russian crude oil by 11 per cent in January from December and by 8 per cent from a year earlier after Indian refiners took advantage of the 49-day grace period to source Russian oil, according to ship tracking data and industry officials. State-run refiner Indian Oil increased imports by over 50 per cent in the month.

Uncertainty in February Shipments

However, February shipments are unclear and refiners expect a huge deficit of cheap Russian oil from March onwards, top refining sources said.

Average Shipments in January

Russian shipments averaged 1.65 million barrels per day in January compared to 1.48 bpd in December and 1.53 million bpd a year earlier, according to market intelligence agency Kpler.

Major Contributors to Imports

Reliance industries accounted for 400,000 bpd, followed by state-run refiner Indian Oil at 354,000 bpd, with both accounting for a combined 46 per cent of purchases during the period.

Predictions for February Supplies

A level of certainty is not visible in India’s February supplies of Russian grades. Kpler, based on algorithms, is predicting 1.6 million bpd in shipments, but unlike January, Reliance is the only committed buyer next month, accounting for 385,000 bpd. State-run refiners put together account for hardly 100,000 bpd. The rest is accounted for by a category of “others,” which comprises sanctioned producers like Surgutneftegas. Market intelligence provider Vortexa pegged January shipments at 1.52 million bpd and February deliveries at 1.8 million bpd.

Impact of US Sanctions on Indian Refiners

Indian officials told Business Standard that while India does not officially accept US sanctions — but only sanctions endorsed by the United Nations — Indian refiners and banks are forced to accept US strictures because of their exposure to the US dollars and western financial markets. That means Indian refiners will accept sanctioned tankers or producers, which have loaded crude oil prior to January 10 and discharging by February 27, according to the US Office of Foreign Assets Control and Indian refining officials. So, Russian cargoes delivered by producers like Surgutneftegas will not be entertained by Indian ports in February.

Other Oil Suppliers to India

Iraq, Saudi Arabia, UAE and Kuwait supplied a combined 50 per cent of India’s crude in December compared to 47 per cent in January. Iraq and Saudi Arabia were the second and third biggest suppliers of oil to India at 21 per cent and over 14 per cent shares respectively in January.

Changes in Discounts and Freight Rates

Sanctions have shrunk discounts while boosting freight rates. Russian traders are now offering only $1.5-$2 per barrel discounts on delivered Russian oil compared to $3-$3.5 per barrel in December, refining sources said. Indian Oil CFO Anuj Jain told analysts in the 3Q earnings call— “And the discounts we were getting up to December were in the range of benchmark crude minus 3. But now the discounts have come down in the range of benchmark crude minus 1 to 1.5.”

Rise in Freight Costs for Tankers

Rates for Aframax tankers carrying Russian barrels from the Baltic Sea to western India rose 47 per cent to $10.10/bbl, while rates to east India climbed by 48 per cent to $11/bbl, UK market information provider Energy Intelligence reported. In the Black Sea, freight rates at Novorossiysk port for Aframax shipments to India increased by 60 per cent to $8.50/bbl for shipments to west India.

Premiums on Alternate Crudes

Moreover, premiums on alternate crudes like UAE's Murban have climbed three fold to a $4/bbl premium over benchmark Dubai after the latest instalment of US sanctions as China and India bid higher for scarce cargoes.

(Except for the headline, nothing has been changed by All India News Network in the PTI copy.)