A window of opportunity has opened up for Indian refiners to export diesel and other refined products to Europe as Russia cuts down on crude oil exports coupled with growing demand for products in the northern hemisphere as it witnesses the summer travel season.
Trade sources said that Russia is slashing exports, particularly the largest selling medium heavy Ural blend, to support global prices and to meet domestic demand for diesel.
“Russia is curbing both crude and some refined exports, which coupled with summers in northern hemisphere offers opportunities for Indian refiners, particularly private sector, to supply gasoil to Europe,” an oil marketing company (OMC) official said.
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Kpler’s Lead Analyst (Dirty Products and Refining) Andon Pavlov pointed out that reduction in medium (heavy) crude availability puts Indian refiners in a “very strong position” against their regional peers, as tightening availability of crude, suitable for conversion operations, will inevitably weigh on margins and operational rates.
From that perspective, India’s relationship with Russia will only become stronger going forward, as it offers Indian refiners a great opportunity to maximise their margins, he told businessline.
Refined product exports
During April-May FY23, India’s exports of automotive diesel fuel to the EU countries rose to around $1.2 billion compared to $560 million a year-ago.
India’s total refined petroleum products export, which stood at 6 million tonnes (MT) in March 2023, fell to 4.37 MT in April, but appreciated to 5.31 MT in May before declining to five MT in June. In FY23, barring March, the exports were in the range of 4-5.7 MT.
Diesel exports, which stood at 2.5 MT in March 2023, fell to 1.91 MT and 2.4 MT in April and May, respectively. A trade source said that outbound shipments were in the range of two MT in June.
“As medium and heavy differentials start to increase, it will be increasingly difficult for refiners in the West of Suez (WoS) to produce what their respective markets demand, opening up an opportunity for Indian refiners to try and place some excess (gasoil) molecules into Europe,” Pavlov said.
East of Suez combines the Middle East and Asia Pacific, while the West of Suez (also called Atlantic Basin) includes the Americas, Europe, Africa and the former Soviet Union.
“India is in a really good position to try and capitalise on any export opportunity that emerges in the WoS. That being said, it will not be a walk in the park, since capacity in Middle East (Al Zour, Duqm), is adding length to global gasoil balance, whereas Chinese demand doesn’t look all that promising, spelling trouble for regional cracks, as exports are set to rise going forward,” Pavlov explained.
He explained that India may be in a better position than some refiners that have imposed import bans on Russian material, but it is very difficult to compete with fully-integrated NOCs (national oil companiesthat pay only production costs for supplying crude to their own refineries.”
Russia production cuts
According to the International Energy Agency’s July oil market report, Russian oil exports fell 600,000 barrels per day (b/d) to 7.3 million barrels per day (mb/d) in June, its lowest since March 2021.
Moscow will cut 500,000 b/d from August 2023 to stem declining prices and revenues, but may hold production steady as domestic oil demand rises seasonally, it added.
Russia accounted for large import shares of naphtha, gasoil, fuel oil in Europe as well as feedstocks in the US. Import replacements in these regions came from markets including North America, the Middle East and Asia. Russian volumes in turn were routed to Turkey, East of Suez, Latin America and Africa.