India and China, the world’s top fossil fuel consumers, collectively account for 80 per cent of Russia’s total crude oil imports in May this year, the International Energy Agency (IEA) said on Wednesday.
Heavily discounted Russian crude oil has found new buyers primarily in Asia. India has increased purchases to close to 2 million barrels per day (mb/d), while China has raised liftings by 500,000 b/d to 2.2 mb/d, the agency said.
“In May 2023, India and China accounted for almost 80 per cent of Russian crude oil exports. In turn, Russia made up 45 per cent and 20 per cent of crude imports in India and China, respectively,” IEA added.
In contrast, during February, Russia accounted for 40 per cent of India’s and 20 per cent of China’s total crude oil imports, respectively. Both countries cumulatively procured more than 70 per cent of Russia’s crude oil exports in that month, as per IEA data.
In Q4 2022, Russia’s crude oil production stood at 9.34 mb/d, which is expected to grow to 9.47 mb/d in 2023, IEA data shows.
According to energy intelligence firm, Vortexa, India imported 1.96 mb/d of crude oil from Russia in May 2023 (748,000 b/d in May 2022) the Urals garde is priced more attractively than the conventional Middle Eastern or Atlantic Basin grades.
Evolving trade dynamics
IEA said that despite sanctions, Russian crude oil supply has held up remarkably well. Crude and product exports have been redirected to new markets as deep price discounts attract traders willing to risk the barrels.
“Some 2.5 mb/d of Russian crude has been dislodged from long-term buyers in Europe and the US and has been heavily discounted to find new customers in Asia. This has created a two-tier market for sour crude grades, which has pressured Asian crude differentials for Middle Eastern grades to compete with heavily discounted Russian supplies,” it added.
By contrast, European and US refiners have bid up Atlantic basin sour crude values in order to attract incremental cargoes, the agency pointed out.
IEA said that there are numerous risks to the forecast, predominantly to the downside. Geopolitical risks remain omnipresent, as China and the West grow apart, with a China/ Russia/ Middle Eastern axis in the process of developing. These will affect energy supply, trade flows and outright prices.
Discounted Russian crude has aided India and China in taming inflation. Moody’s Analytics on Wednesday said that India has doubled its imports of low-cost Russian oil over the past year, which has helped keep the cost of energy manageable and helped to tame its high inflation.
On the other hand, China’s purchases of Russian oil have remained rather constant in volume terms, but the discount on oil from Russia also helps maintain low producer and consumer-price inflation, it added.