Indian refiners, both state-owned and private, are increasingly eyeing stocks of Russian ESPO blend crude oil, a favourite with China’s private refiners, S&P Global Commodity Insights has said.
Russia’s Ural blend, a medium API sour crude, is the grade that India normally imports from Russia to replace medium-to-high API and sour grades from West Asia and low sulphur grades from Western Africa.
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Seaborne Russian ESPO Blend crude oil is beginning to attract buyers in India, a trend that could intensify competition between two of Asia’s top oil importers, S&P said.
Although Indian refiners have remained tight-lipped about their recent ESPO deals, talk of multiple import deals being sealed by both private and state-run refiners has lifted premiums for the grade, it added.
The blend, which is transported through the East Siberia Pacific Ocean (ESPO) pipeline to Asian markets, is supplied to China via pipelines as part of long-term contracts, as well as through the sea route for spot purchases.
It is primarily shipped from Kozmino in Aframaxes carrying around 100,000 tonnes each. Russia has been exporting more than 3 million tonnes (MT) per month of ESPO crude from Kozmino, with shipments in January 2023 climbing close to 4 MT, according to shipping industry estimates.
Renewed buying of ESPO
Trade sources said India’s interest in ESPO has increased in recent weeks after a few trial cargo purchases in 2022, but it was too early to say if is a long-term trend until shipment challenges and relatively higher freight costs are addressed.
“India’s renewed buying of ESPO, which is low sulphur, is largely attributed to balancing the refinery crude mix to maintain high refinery throughput and manage intermediate stocks and ullage positions, so that refinery throughput is not affected,” said Sumit Ritolia, a senior South Asia oil analyst at S&P Global Commodity Insights.
Price impact
Cash differentials of ESPO blend have soared in recent days following talk of fresh buying from refiners in India, as well as strong interest from China, S&P said.
Indian refiners are believed to have collectively bought seven Russian ESPO blend cargoes for April loading, according to trade sources and Kpler shipping data, it added.
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While some sources attributed India’s buying of ESPO to the disruption in trade flows of Ural crude, others said the recent rebound in the medium sour crude complex might have spurred refiners to seek alternative Russian grades.
Prior to Russia’s invasion of Ukraine, Aframax freight from Kozmino to North China was less than $500,000; it has since jumped four-fold to more than $2 million and is set to rise further, one freight broker said.
Platts assessed Aframax freight on the Kozmino-North China route at $2.1 million (March 6), compared with $470,000 in the week before the Ukraine invasion in February 2022, S&P Global data showed.
A trade source estimated the lumpsum rate from Kozmino to the east coast of India at $4 million, and to the west coast at $4.5 million.