With discounts on Russia’s flagship crude Urals having narrowed considerably in recent weeks coupled with lower oil purchases by Indian refiners due to maintenance shutdowns at some units, India’s import volumes of the medium-sour crude declined by nearly a third on a month-on-month (MoM) basis in August. This, in turn, resulted in New Delhi’s overall Russian oil imports falling to a seven-month low, shows an analysis of data shared by energy cargo tracker Vortexa.
Import volumes of Urals — the mainstay of India’s Russian oil import basket–declined to 1.08 million bpd from 1.60 million bpd in July. Even Urals import volumes were at a seven-month low in August. India’s total Russian oil imports fell 23.4 per cent month-on-month in August to 1.47 million barrels per day (bpd). Barring January, when cumulative Russian oil imports of Indian refiners stood at 1.27 million bpd, August volumes were the lowest this year.
While Russia maintained its position as India’s top source of crude oil in August, its share in the country’s overall oil imports declined to 33.8 per cent during the month, down from a share of over 40 per cent seen over the previous three months. In August, India imported a total of 4.35 million bpd of crude, which was down 5 per cent MoM, according to Vortexa. Meanwhile, oil imports from Saudi Arabia–traditionally a major oil supplier to India–jumped nearly 70 per cent MoM to 820,000 bpd during the month.
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“India’s imports of Russian crude have fallen by over 20% month-on-month in August, driven by lower exports from Russia. Russian Urals discounts to dated Brent have narrowed with lower supplies in the market, which have likely dampened India’s appetite for the crude compared to the past few months,” said Serena Huang, head of Asia-Pacific analysis at Vortexa.
In July, the price of Urals as per international assessments breached the $60-per-barrel cap imposed by G7 countries and the discounts being offered by Russian oil exporters have eroded substantially. This appears to have negatively impacted India-Russia oil trade, which has been booming since Moscow’s February 2022 invasion of Ukraine.
Industry watchers expect Russia’s crude oil exports to remain subdued over the next few months, unless Moscow plans to reverse its production and export curbs, which are part of a larger coordinated action by the world’s major oil producers to support oil prices, and deepen discounts on its crude vis-à-vis global benchmarks and comparable West Asian crudes.
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. Prior to the war in Ukraine, Russian oil had a share of less than 2 per cent in India’s oil import pie.
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According to industry insiders, while India’s Russian oil imports could decline further due to a combination of reduced exports from Moscow and erosion of discounts on Russian crude, there are ways to prevent a significant slide in volumes. That, however, would require Indian refiners as well as Russian oil exporters to work closely and show some flexibility on discounts as well as payment terms.
Sources in the Indian government have already indicated that public sector refiners are looking to increase oil purchases from their traditional West Asian suppliers of crude oil, given the significant erosion 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 on a regular basis. 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 of the commodity. Such a high import dependency makes Indian refiners and the country’s economy extremely sensitive to international oil prices, which in turn means that Indian refiners are continuously scouting for discounts and favourable pricing and payment terms in their oil purchases.