Imports hit ceiling, Russia's "big customers" are about to switch to Iraq

Since the Russia-Ukraine conflict broke out in February 2022, Indian refiners have snapped up discounted Russian oil. Moscow has thus gradually become India’s top crude supplier, accounting for about 40% of the Asian country’s crude imports.

June marked the 10th consecutive month that India's crude oil imports from Russia increased from the previous month, data from commodity information firm Kpler showed.

“This is an unprecedented feat in recent history, especially with the volume imported reaching 2.2 million barrels per day in June,” said Viktor Katona, chief crude oil analyst at Kpler. And this will be the highest volume of oil India can import from Russia – at least this year, Katona predicted.

“I think 2.2 million barrels a day will be the peak this year. India’s imports from Russia will come down slightly to 2 million barrels a day. That will be a sustainable level of purchases,” Katona predicted.

Causes from both sides

The volume of crude oil consumed and processed by Indian refineries has now reached its “seasonal peak” and will only trend downward from here, according to Janiv Shah, senior analyst at Norway-based energy research firm Rystad Energy.

Mr. Katona agrees, noting that in addition to refinery shutdowns, demand for oil will also fall.

“Some refineries in India will undergo maintenance for the first time this year. This did not happen in the first five months of the year because there was no turnaround,” said Mr. Katona.

India's monsoon season begins in early June and the summer period is typically accompanied by lower demand for oil products due to less construction and travel activity, Mr Katona added.

World - Crude oil imports hit ceiling, Russia's — The Suez Fury crude oil tanker is anchored at the Kozmino terminal in Nakhodka Bay, near the port city of Nakhodka, Russia, December 4, 2022. Photo" Reuters

Fuel demand in India, the world’s third-largest oil consumer, typically slows during the four-month monsoon season. India’s total oil demand in June fell 3.7% to 19.31 million tonnes from May, according to data from the Petroleum Planning and Analysis Cell.

Not only is demand from India declining, supply from Russia is also limited, according to Daniel Hynes, senior commodity strategist at ANZ bank.

A recent report by the International Energy Agency (IEA) showed that Russian oil exports fell by 600,000 barrels per day to 7.3 million barrels per day in June - the lowest level since March 2021.

However, the 2.2 million bpd figure is unlikely to be the upper limit of Russian oil entering India in 2024.

“In the March-May period, demand for Russian oil is likely to be unrestricted from India, and Russian exports will once again be boosted by refinery turnarounds,” Katona predicted.

Political relations

Another reason why India has to reduce crude oil imports from Russia is that the Asian country needs to maintain relationships with other exporters, especially major suppliers in the Middle East.

“Technically, the Indians could buy more, but they don’t want to upset the Middle East. Politics is also important,” said Mr. Katona.

According to Rystad data, 55% of India's recent seaborne sour crude (with a sulfur content higher than 0.5%) imports came from Russia, while imports from the Middle East fell to 40%, a historic low.

India's crude oil imports from the Middle East fell 21.7% to 8.68 lakh tonnes in June from a year earlier, data from Refinitiv showed.

However, “Indian refiners can always take more Russian crude than other grades, such as Middle Eastern grades, if the price gap widens,” said Yaw Yan Chong, Refinitiv’s head of oil research in Asia.

India is in talks with traditional crude exporters in the Middle East to boost purchases as Russian imports lose their price advantage, an Indian government official said.

Indian public sector refiners are in talks with traditional crude suppliers in West Asia, especially Iraq, to increase purchases amid a significant reduction in discounts on Russian crude, and potential payment issues as Russia’s Urals crude trades above $60 a barrel, the official said.

“Iraq has been supportive and a good trading partner. They have also given us discounts in the past,” the official added, without giving details of the discounts and additional volumes being considered.

Analysts expect Indian refiners to use the Russian oil price hike and the G7 price cap as leverage to negotiate better discounts with Moscow .

Nguyen Tuyet (According to CNBC, Indian Express)

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