Chinese Oil Buyers Reduce Russian Purchases
Chinese refiners are canceling Russian oil cargos and adopting a wait-and-see attitude after the latest U.S. sanctions on Russia’s oil industry.
Bloomberg reports, citing traders, that state-owned majors including Sinopec and PetroChina had canceled previously ordered Russian oil cargos, while the so-called teapots, or independent refiners, had stopped buying Russian crude to avoid getting penalized for violating the U.S. sanctions.
The publication cited Rystad Energy as estimating that some 45% of Chinese imports of Russian crude have been affected by the sanctions. The figure represents some 400,000 barrels daily. As a result of the forced change in buying habits, Russian crude is trading at a deeper discount, with the flagship Urals at $57.99 per barrel at the end of last week. China mostly imports another blend, the Eastern Siberian-Pacific Ocean or ESPO, and the cargo cancellations have pushed its price lower, Bloomberg noted.
Russia became the largest single oil supplier to both China and India over the past three years, thanks to the discounts its oil carries amid Western sanctions. Now, both China and India need to find alternatives to Russian crude, of which there are plenty, but at usually higher prices. China has made itself a supply cushion by importing more crude than it is using this year, and building more storage capacity. Plans are to have 11 new storage sites with a combined capacity of 169 million barrels by the end of 2026.
India is having a more challenging time replacing Russian oil supply. Russia accounts for a third of its total oil imports, which in turn account for some 85% of consumption. Due to its overwhelming dependence on imported crude, India is especially vulnerable to price differences and is especially motivated by discounts when making buying decisions. Even Indian refiners are reportedly turning away from Russian crude as well, to avoid U.S. sanction penalties.
By Irina Slav for Oilprice.com
Indian Refining Giant Switches From Russian to Emirati Crude
Bharat Petroleum, one of the largest refiners in India, has bought a cargo of Emirati Upper Zakum crude, as it seeks alternatives to Russian oil, Reuters has reported, citing unnamed sources.
The cargo is 2 million barrels, to be delivered next month. Bharat Petroleum bought it on the spot market, where it previously mostly bought Russian crude, at the same rate of around 2 million barrels monthly.
Reports of Indian refiners buying non-Russian oil cargoes have become frequent in the past couple of weeks, following Washington’s decision to impose sanctions on two of Russia’s biggest oil exporters, Rosneft and Lukoil.
The two together handle about half the country’s crude exports, a big portion of which goes to Indian refiners. While the news initially caused a small price shock, the effect quickly evaporated as it became clear that there are ways around the sanctions, such as buying Russian crude from non-sanctioned entities and, ultimately, changing the supplier, even at a higher cost.
Indian Oil Corp., for instance, last week bought as many as five cargoes of Russian crude oil for December delivery from non-sanctioned sellers. IOC is the largest refiner in India, and the purchase signals there are still ways to buy Russian crude without violating the latest sanctions, aimed at draining Russia’s energy export revenues, widely assumed in Washington to be the only source of funding for the war in Ukraine.
Other Indian oil processors, meanwhile, are buying crude from elsewhere, including the Middle East, the Americas, and West Africa. That oil often costs more than Russian crude, which, thanks to the sanctions, sells at a discount, but at least there is supply, even if the bills end up higher.
This could become an issue over the longer term. India imports over 80% of the oil it consumes, meaning it is quite sensitive to price increases on global markets or, in the case of sanctions, the need to switch from cheap to costlier crude.
By Irina Slav for Oilprice.com
Bharat Petroleum, one of the largest refiners in India, has bought a cargo of Emirati Upper Zakum crude, as it seeks alternatives to Russian oil, Reuters has reported, citing unnamed sources.
The cargo is 2 million barrels, to be delivered next month. Bharat Petroleum bought it on the spot market, where it previously mostly bought Russian crude, at the same rate of around 2 million barrels monthly.
Reports of Indian refiners buying non-Russian oil cargoes have become frequent in the past couple of weeks, following Washington’s decision to impose sanctions on two of Russia’s biggest oil exporters, Rosneft and Lukoil.
The two together handle about half the country’s crude exports, a big portion of which goes to Indian refiners. While the news initially caused a small price shock, the effect quickly evaporated as it became clear that there are ways around the sanctions, such as buying Russian crude from non-sanctioned entities and, ultimately, changing the supplier, even at a higher cost.
Indian Oil Corp., for instance, last week bought as many as five cargoes of Russian crude oil for December delivery from non-sanctioned sellers. IOC is the largest refiner in India, and the purchase signals there are still ways to buy Russian crude without violating the latest sanctions, aimed at draining Russia’s energy export revenues, widely assumed in Washington to be the only source of funding for the war in Ukraine.
Other Indian oil processors, meanwhile, are buying crude from elsewhere, including the Middle East, the Americas, and West Africa. That oil often costs more than Russian crude, which, thanks to the sanctions, sells at a discount, but at least there is supply, even if the bills end up higher.
This could become an issue over the longer term. India imports over 80% of the oil it consumes, meaning it is quite sensitive to price increases on global markets or, in the case of sanctions, the need to switch from cheap to costlier crude.
By Irina Slav for Oilprice.com
Indian Refiners Pivot Away From Russian Oil
- Indian refiners are moving away from Russian oil following new U.S. sanctions, opting for more expensive U.S. and Middle Eastern grades to avoid repercussions.
- The sanctions have reduced the attractiveness of Russian oil by narrowing discounts and increasing transaction risks, causing India's share of Russian oil imports to decline.
- The upcoming OPEC+ meeting on November 2nd will be crucial in determining the future oil price trajectory, with analysts predicting a continuation of current production plans.
Oil prices were little changed in the current week, with bearish sentiment still ruling the markets after the U.S. agreed to a one-year truce to its trade war with China, despite reports that Indian refiners are ditching Russian oil following fresh U.S. sanctions. Brent crude for December delivery traded at $65.07/bbl at 2.22 pm ET on Friday, a slight drop from $66.48/bbl a week ago, while the corresponding WTI contract was changing hands at $60.92/bbl, down from $61.95/bbl.
Last week, the Trump administration announced fresh sanctions targeting Russia’s oil and gas giants, Rosneft and Lukoil, just days after the UK unveiled similar sanctions. Previously, Trump threatened tough measures against Moscow for failing to agree to a peace pact with Ukraine, but had avoided making good on his threats. And now there are reports that Indian refiners are shunning Russian oil in favor of costlier U.S. and Middle Eastern grades in a bid to avoid incurring Trump’s wrath.
Over the past three years, India has been taking advantage of cheap Russian crude, frequently offered at discounts of $8-$12 per barrel over Middle Eastern benchmarks. Russia has consistently been India’s largest supplier since mid-2022, with India buying ~1.75 million barrels per day from Russia at its peak, largely from Lukoil and Rosneft. India typically imports 86% of the oil it consumes. However, the latest round of U.S. sanctions targeting shipping, insurance and trading networks that Indian refiners leveraged to buy Russian oil at scale has narrowed those discounts and raised transaction risks, making Russian oil far less attractive.
Further, the sanctions have made banks more cautious with settlement channels. Consequently, the share of Russian oil in India’s import basket has declined to 34% in the current year from 36% in the previous two years. In contrast, U.S. crude imports into India surged to 575,000 barrels per day in October, the highest level in three years, signalling a deliberate pivot. India will now have to contend with higher energy bills, “Crude oil prices surged sharply following fresh sanctions on Russian oil majors, sparking tightening supply fears and renewed inflation concerns. This could negatively impact India, as elevated crude prices may widen the fiscal deficit and strain the import bill,” Vinod Nair, Head of Research at Geojit Investments, said.
Commodity analysts at Standard Chartered have predicted that the oil price trajectory will be determined by the quantity of Russian barrels removed from supply following the sanctions. Rosneft and Lukoil exported 1.9 million barrels per day (mb/d) of crude via sea over the past year, most of it to India and China. China also imported ~ 800K barrels of crude per day (kb/d) from Rosneft via pipeline.
Russia has lately been trying to woo Chinese energy buyers over the past few months: Last month, Gazprom and Beijing signed an agreement to construct the Power of Siberia 2 natural gas pipeline while Rosneft has agreed to supply additional pipeline volumes via Kazakhstan. Russia will likely struggle to replace India and Chinese barrels if they start substituting Russian Urals with barrels from the U.S., Middle East, Brazil, Canada and West Africa.
All eyes will now turn to OPEC+ when its members meet virtually on 2 November. StanChart has predicted that the group will continue with its latest plan of adding 137 kb/d to the market each month, with no good reason for OPEC+ to adjust the strategy at its upcoming meeting.
Meanwhile, Iraq’s compliance with its first month of compensation cuts is also likely to be highly scrutinized.
The latest compensation plan suggested the OPEC member would decrease its output by an additional 130 kb/d in each of the September and October loadings, nearly enough to offset the barrels added to the market by OPEC+.
Crude exports from Kurdistan to Türkiye commenced at the end of September after a 2.5-year hiatus, with these exports falling under the total Iraqi production quota. Iraq’s oil Minister Hayan Abdel-Ghani recently revealed that the country’s oil exports are 3.6mb/d, of which ~200kb/d are from Kurdistan. Iraq exported 3.4mb/d of crude in the first nine months of the year, with 64% destined for India and China. It’s not yet clear whether exports were impacted by the fire at the Zubair-1 depot, which was estimated to have cut off 400-600kb/d of Basra medium crude from export markets. Any long-term disruption would make it harder for India and China to replace Russian oil.
By Alex Kimani for Oilprice.com
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