Russia's domination over Indian crude market will continue in 2023: Experts

Sizeable discounts on Urals grade have helped evade new sanctions by western powers; fate of Russian supplies in Q1 of calendar 2023 rests on oil price movement

Russia steamrolled rivals Saudi Arabia and Iraq to dominate India's crude oil basket for the fourth consecutive month in December, maintaining its grip on the world’s fastest growing major market for fuels. Russian oil will continue to power Indian vehicles and homes in January, according to data from western commodity analytics firms and Indian customs.

Russia’s sizeable discounts on Urals grade have helped evade new sanctions announced by western powers early December. The latest measures involve imposing a $60 a barrel ceiling on purchase of Russian crude, but the US and Europe have kept Russian shipments discharged until 19 January outside the purview of the cap.

Russia shipped 1.2 million barrels a day of crude in December to India, a near record, and a 30 per cent increase from 926,000 barrels in November, according to Paris-based commodity data provider kPler as on  December 30. Russian oil accounted for a quarter of India’s total crude shipments of 4.78 million barrels a day last month. kPler tracks ship movements to calculate oil shipments, which constantly change, especially in Russia’s case, where, in order to evade sanctions, tankers change destinations or transfer cargoes to other vessels mid sea.

"Urals are trading below the price cap," said Matt Smith, an analyst at kPler. "Russia will remain the leading supplier of crude to India in January, delivering well over 1 million barrels a day. India looks set to continue taking record volumes of cheap Russian crude—price cap or no price cap."

Iraq, whose Basrah crude is most suited for Indian refiners, supplied about 903,000 barrels a day in December compared to 882,000 barrels in November; Saudi Arabia shipped only 679,000 barrels a day during the period, flat from November. Riyadh seems less concerned about its declining share of the Indian market, at 14 per cent last month compared to over 22 per cent prior to the conflict in Ukraine. This is because it has found a ready market for its oil in rich, western nations, which are willing to pay a premium for its oil, an Indian industry official said.

"Russia continues to be an attractive proposition for Indian refiners," said R Ramachandran, a Mumbai-based oil industry expert. "As long as price variations continue to exist and discounts to Brent remain, Russia will be a serious contender."

The discounts prompted Indian refiners to look at Russia, enabling Moscow to increase market share to 25 per cent from one per cent prior to the Ukraine war, and allowing Russian crude to compete against India's traditional supplies of Arab Mix.

Moscow said last week that it will stop crude supplies for five months to nations that agreed to a price cap. But the ban holds little value as EU, US, Canada, Japan, UK and Australia already do not import Russian oil.

Brent crude rose to a lesser-than-expected $86 a barrel after the Kremlin's export ban announcement from $76-a-barrel levels seen after the G7 nations announced the price cap on December 5. But Urals, India's staple Russian grade, is trading only at around $50 a barrel, according to Swiss trader Neste.

Russia, Iraq and Saudi Arabia together accounted for over half of India’s supplies in December. The UAE, a key supplier to India prior to the Russian invasion in February, supplied 367,000 barrels a day compared to 409,000 barrels in November; The US, which has lost substantial share in India’s oil market to Russia, shipped 334,000 barrels a day in December from 434,000 barrels in November after the spread between European Brent and US WTI benchmark shrank to $3 a barrel compared to over $9 a barrel in November. Delivered volumes of US crude were as high as 700,000 barrels a day in February, Indian customs data shows, which reports delivered cargoes.

It is an opportunistic trade for India, an industry official said, referring to Russian purchases. If the discounts are gone Russia's share may reverse to one per cent, he added.

The fate of Russian supplies in the first quarter of this year rests on the movement of oil prices as a substantial surge to over $90 per barrel may vault Russia’s discounted Urals grade over the $60 a barrel price ceiling prescribed by western nations, a Delhi-based oil expert said. That may force India to take a position on the price cap because violation of the cap is tied to denial of western tankers and insurers for Russian cargoes. India entirely relies on western ships and insurers to import its oil. India will not get involved in the price cap mechanism because it jeopardizes over 1 million barrels a day of crude imports, Smith said.