India has recovered its enormous appetite for Russian oil and is likely to buy between 1.5 million barrels per day (mbpd) and 1.7 mbpd, moving back to levels last seen around March.
Buying levels had plunged in August and September because of a combination of factors, including a drop in demand as the monsoons set in and the fact that several refineries had cut production because of the annual maintenance shutdown. “The end of the autumn maintenance season has sparked an Indian buying renaissance,” says Viktor Katona, lead crude analyst at data and analytics company Kpler.
A new report by Kpler adds that India “is set to overcome its seasonal weakness over the upcoming weeks and head into a strong winter streak.” Since the Ukraine war began in February 2022, Russia has gone from being a pipsqueak in the Indian oil market to the country’s second-largest supplier, just behind Iraq, and supplanting Saudi Arabia.
But prices for Russian oil aren’t as cheap as they used to be. Russia has cut production in recent months after striking a deal with Saudi Arabia to bring down the amount of oil coming on the market and push up prices.
Besides that, the turmoil in Israel resulted in prices rising by $6 in the last fortnight. Due to this potent combination of factors, Brent crude, the leading indicator of global oil prices, has risen from the low $80s to a peak of around $93 a few days ago.
Prices fell back in what was seen as a temporary move to around $89 on Friday due to uncertainties about the global economy fuelled by the escalation of Israeli hostilities against Gaza.
Discounts on Russian oil have fallen considerably and India is now getting supplies at $4 cheaper than Brent crude levels. That’s about $6 a barrel cheaper than Iraqi Basrah medium and $8 a barrel cheaper than Saudi Arab Light, two varieties frequently used by Indian refiners. These are sufficient discounts to make it attractive for Indian refiners to be buying Russian crude but the discounts are not as high as the around $20 per barrel given by Moscow earlier.
While the Group of Seven countries set a price cap of $60 per barrel on Russian oil last December in a bid to restrict Moscow's earnings to fight its war on Ukraine, there are various ways to get around this. Also, with a US election looming next year, President Joe Biden is keen to ensure that energy supply shortages don't drive fuel pump or home-heating prices higher.
Indian demand is also expected to rise in the coming months. Says Kpler’s Katona:: “Over the past weeks, Russian imports seem to have found a new norm between 1.6 and 1.7 Mbd, and it won’t be until November that inflows of Urals and other Russian grades edge seasonally higher.”
The Kpler report adds: “The end of autumn maintenance and the gradual ramp-up in Indian refinery runs comes hand-in-hand with an improving demand outlook into November-December, with diesel needs alone set to add almost 200 kbd compared to October’s 1.77 Mbd.”
India, meanwhile, has also turned back to Iraq and bought 916,690 bpd from the Gulf country, which was once its largest oil supplier. India’s purchases of Saudi Arabian crude are down to around 556,185 bpd.
Apart from a demand slowdown during the monsoon, the other key factor that sent refinery production downwards was the maintenance shutdown at Reliance’s Jamnagar unit which is India’s largest refinery. Production at the IndianOil Corporation’s Paradip refinery was also halted briefly.
But India’s loyalty to Russian oil is based on price. If Middle Eastern nations reduce their prices for crude, New Delhi may rethink the extent of its Russian purchases and turn back to the Gulf which offers easier transport.
