RIL, Nayara account for a combined 69% of Russian oil shipments to India

Neither pressure from the US nor tightening European sanctions have made India step back from the purchase of cheap Russian crude oil, joining rival China to create financial lifelines for Russian President Vladimir Putin.

But the drive to feed on discounted Urals is led by private sector refiners, Reliance Industries and Russian Rosneft-controlled Nayara Energy, which after an initial hesitancy over the impact of sanctions on their operations, are embracing Russian crude oil.

The push by Reliance and Nayara to scoop up Russian Urals from the market propelled Russia to become India’s second biggest oil supplier last month, overtaking traditional ally Saudi Arabia, and just behind Iraq, according to shipping data and analysts. It’s unclear if the momentum will sustain because June shipments show a month-on-month dip after Saudi Arabia priced its oil more competitively, fearing erosion in market share. But it has raised premiums for July deliveries to near record levels.

Supplies of Russian crude to India averaged 380,000 barrels a day this month, but volumes may rise by the end of the month as more tankers update their destinations at a later date, said Serena Huang, an oil analyst covering the Asia Pacific with London-based data analytics firm Vortexa. That is 45 per cent lower than 700,000 barrels a day in May, when Saudi Arabia demanded record premiums for term supplies. Other analysts showed bigger numbers last month, and Indian Customs data is not yet available.

Reliance and Nayara accounted for a combined 69 per cent of Russian shipments to India in May, according to Vortexa, and may sustain such shares going forward, analysts said. Supplies of Urals to Reliance averaged 280,000 barrels a day in May while Nayara absorbed 200,000 barrels a day. The remaining 220,000 barrels a day went to Indian state refiners led by IOC. This contrasts with March, weeks after Russia invaded Ukraine, when state-run refiners were more active in securing cheap supplies.

“Russian seaborne oil exports towards India (excluding CPC crude) have accelerated quickly since the war in Ukraine began,” said Reid L’Anson, a Houston-based senior commodity economist for Paris-based commodity and data intelligence firm Kpler. Departures to Indian ports finished more than doubling from March to around 950,000 barrels a day in April, and averaged 770,000 barrels a day in May, he added. That compares with Russian shipments of 24,000 barrels a day in January. Over April and May, 250,000 barrels a day was confirmed flowing towards Reliance with an additional 130,000 barrels a day towards Nayara, L’Anson added.

Reliance’s Jamnagar complex and Nayara’s Vadinar plant, which don’t publicly put out oil import data, typically import via Sikka and Vadinar ports.

What has motivated private refiners to step up Russian oil purchases in a big way are reported $25-30/barrel gross discounts on Russian cargoes, record crack spreads, or the profits made from converting crude to diesel or petrol, and strong demand for fuels from Europe, which is reducing reliance on Russian fuels.

“India became a significant importer of Russian crude oil, buying 18 per cent of the country’s exports (from 1 per cent prior to the war),” said Lauri Myllyvirta, lead analyst at Finland-based Center for Research on Energy and Clean Air (CREA). The largest buyer is the Jamnagar refinery, which sourced 27 per cent of its oil from Russia in May, up from less than 5 per cent before April, he added.

“A significant share of the crude is re-exported as refined oil products, including to the US and Europe, an important loophole to close,” Myllyvirta said. More than half of the refined oil deliveries from Jamnagar was exported,  Myllyvirta said. A fifth of exported cargoes left for the Suez canal, heading to Europe and the US.

But shipping remains a concern as sanctions loom. Eighty per cent of deliveries of Russian crude oil to India and West Asia were made with ships owned by the EU, UK, and Norwegian companies, and 97 per cent of the tankers were insured in the UK, Norway, and Sweden, CREA said. 

The emergence of “Indiaʼs refining trade” has meant that more tanker capacity than ever before is needed to ship Russian crude, which can significantly limit exports if there are strong sanctions against tankers transporting Russian crude.

The EU agreed on the sixth package of sanctions against Russia to be enforced at the end of a six-month period, planning to eliminate 93 per cent of Russian oil sales to the EU by the end of the year. That frees up more oil for China and India provided Indian companies manage their logistics and insurance, an official from a state-run refiner said.

Indian refineries have gained the confidence and ability to process Russian crudes over the last few months, and have optimized their facilities for Urals. This is reflected in higher volumes, said R Ramachandran, an oil industry consultant.

Urals is typically blended at the plants to facilitate processing as no Indian refinery is designed for Russian crudes. 

For instance, Russian crudes contain more than the desired quantities of organic chlorides that can over time corrode refinery equipment. Blending solves the problem, an official from a state-run refiner said.

Arrivals from Russia have mainly replaced spot purchases, and perhaps in some cases, options to buy more under term contracts. Term contracts with West Asian suppliers cannot be replaced because they have been reliable for decades, Ramachandran said.

“Urals trade depends on discounts, and as long as those continue there will be buyers,” said Prashant Vashisht, vice president and co-group head, ICRA. 

Indian refiners are still deriving $10-15 a barrel net realisation on Urals, the refinery official said. There are another 20 shipments of Russian crude underway to India, with a total estimated value of Euro 880 million, which suggests that imports will continue at least at the level seen in the past weeks, Myllyvirta said.

India was castigated by western powers for buying Russian oil but that pales compared to how much Europe still continues to buy from Russia, and supply ships and insurance for Russian deliveries.

Russia earned Euro 93 billion from sales of fossil fuels in the first 100 days of the war until June 3, of which India’s share was Euro 3.4 billion, comprising Euro 3 billion of crude oil and the rest for coal.