The production cuts announced by Russia in a bid to arrest the decline in international crude oil prices have started to impact its seaborne trade with India, which is expected to continue in the coming months.
Besides, the scenario could also lead to the world’s top two oil consumers — China and India — vying fiercely for the highly sought-after discounted barrels from Russia.
As per energy intelligence firm Vortexa, India’s crude oil imports from Russia fell by a steep 8 per cent M-o-M to 1.798 million barrels per day (mb/d) in June 2023 from a record 1.96 mb/d in May, which is being attributed to voluntary production cuts by the world’s second largest crude oil producer.
“India’s crude imports from Russia declined in June, off the back of lower exports from Russia. Russia has reportedly announced that it is cutting exports by 500,000 bpd from August, which if materialised, would likely see lower volumes to India, and increased competition of Russian crude with China,” Vortexa’s Head of APAC Analysis, Serena Huang, told businessline.
Earlier this year, Russia announced a production cut of 500,000 barrels per day (bpd) from February 2023 levels till end-2023. Earlier this week, following the 1 mb/d production cut announced by Saudi Arabia, the erstwhile Soviet Union also said it will slash output by 500,000 bpd for August.
Plateauing imports?
Huang was of the view that the oil trade between India and Russia is too lucrative for both the countries to ignore.
Recently, Indian refiners have been facing currency issues while making payments from crude oil cargoes, which some say may impact the trade.
Huang said that considering the strategic importance of India as Russia’s largest buyer of crude, Russia will find ways to address the said challenges. The attractive economics of Russian crude for Indian refiners will also mean that it is of best interest to them to resolve the challenges to ensure continuity in crude supplies from Russia.
When asked whether India’s imports will decline due to lack of refining capacity for Russian barrels, Huang said: “While several Indian refiners have been running close to their capacities in recent months, there is likely room for them to increase their imports of Russian crude (probably more sweet than sour), while cutting back on imports from other suppliers. Ultimately, Russia’s crude exports will be the limiting factor.”
Trade in June
During June 2023, of the total 1.798 mb/d of imports, the Ural grade accounted for around 1.35 mb/d followed by 140,000 bpd of Sokol (Sakhalin I), Varandey (116,000 bpd), ESPO blend (114,000 bpd), Siberian Light (51,000 bpd) and Novy Port Light (31,000 bpd).
Russia for the second consecutive month remained India’s largest crude oil supplier compared to the world’s third largest energy consumer’s traditional trading bloc, the Middle East.
However, the decline in imports from Russia helped bridge the volume gap with respect to West Asia. Last month, the total imports from West Asia stood at 1.75 mb/d.
During May, India imported 1.96 mb/d from Russia against a total of 1.81 mb/d from the middle eastern countries — Iraq, Saudi Arabia, the UAE, Kuwait, Oman and Qatar.
Iraq continued to be India’s second largest trading partner for crude oil with volumes of 844,000 bpd followed by Saudi Arabia (734,000 bpd).