Gulf crudes make a comeback as Russian Urals grade turns expensive

Russian oil's share of India's overall crude import basket down 8 percentage points in October amid lower discounts

India's top refiners are continuing to lower their purchase of Russian oil as they see more value in converting Gulf crudes into fuel.

The share of Russian supplies in India's overall crude import basket dropped sharply to 35 per cent in October from 43 per cent in September, according to refining officials and trade data as on October 31.

Combined supplies from Iraq and Saudi Arabia, the biggest suppliers of Gulf crudes, exceeded Russian deliveries for a second time in three months, according to ship-tracking data from Paris-based market intelligence agency Kpler. Russian crude supplies had exceeded combined Saudi-Iraqi shipments for much of 2023.

Moves by Washington to enforce sanctions strictly in October by opening investigations into two tankers transporting Russian oil led to concern in New Delhi, according to officials, in addition to surging prices of Russian export benchmark crude Urals, the mainstay for Indian refiners.

As a result, the composition of Indian purchases changed in October, with Gulf crudes making a comeback. Higher imports of crudes from West Asia have coincided with the prices of Urals rising to their highest this year.

Using a weighted average for various crude streams — seaborne Urals, Espo, pipeline deliveries, and Arctic shipments — UK-based market intelligence provider Energy Intelligence estimated that Russia exported crude oil at around $86 a barrel in September, a discount of just over $7 to European benchmark Brent. Urals continued to retain its pricing strength in October. In contrast, in January, the average price of an exported barrel was $60, representing a discount of $22 per barrel.

India's crude imports from Saudi Arabia jumped to 871,000 barrels a day in October from 484,000 barrels a day the previous month, eating into the share of Russian oil and displacing Iraq as India's second-biggest crude supplier as on October 31, according to early loading data from Kpler. Imports of Russian crude oil averaged 1.5 million barrels per day in October, 15 per cent lower than September.

Nayara Energy purchased a record 307,000 barrels a day in October, 16 per cent more than the previous month, and much higher than 116,000 barrels per day a year earlier, according to Paris-based market intelligence agency Kpler. At 304,000 barrels a day, Indian Oil’s imports during the month were the least since December 2022, and 40 per cent lower than September. Reliance Industries slashed its purchases by 16 per cent to the lowest since November 2022.

The reduction in purchase comes in the wake of lower discounts offered on Russian crude to Indian refiners. According to an official of a Mumbai-based refiner, the discounts have more than halved from the $10-13 a barrel offered in early 2023, just after the G-7 grouping tightened sanctions on Russian crude exports by imposing a price cap. Indian refiners find Urals competitive only when discounts are more than $5 a barrel, the official said. The break-even is at $4 a barrel. Double-digit discounts are not possible unless the West tightens the screws further on Russian oil, a state-run refining official said.

Indian refiners are worried as the US imposed the first sanctions this month on two ship owners of Turkish and UAE origin suspecting them of breaching the limit of $60 a barrel. UK officials are also investigating potential violations, Energy Intelligence said.

All three refineries of Bharat Petroleum were running Russian crude at the maximum level the plants could process in the July-September quarter, top company officials said in a conference call on Monday. The company was the third-biggest importer of Russian crude in October, along with Reliance. No payments to Russia are pending, a company official said, dismissing reports of pending yuan payments. There have been some issues of delayed payments in cases of currencies like the yuan, but refining officials said these constituted a minor portion of overall purchases.

Supply peaks of over 2 million barrels per day of discounted Russian oil to India seen in the April-July period — which enabled hundreds of millions of dollars in savings in crude oil procurement when compared with the more expensive Saudi grades — will not be possible this year until Russia boosts production, said the Mumbai-based refining official. Moscow has reduced output by an additional 300,000 barrels a day on top of the cuts mandated by the Organization of the Petroleum Exporting Countries Plus (Opec+) grouping. This will continue until the end of the year, according to Russian officials.