India emerged as the largest buyer of Russian Urals crude in April enticed by hefty discounts, as several of the grade's regular European customers have boycotted this oil following Russia's invasion of Ukraine.
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Urals has been trading at record-lows in recent weeks, with some deals being done at discount of almost $40/b to the Platts Dated Brent crude oil benchmark.
Around a quarter of Russia's seaborne crude exports of the medium sour Urals in April is poised to travel to the South Asian country, according to trading sources and ship tracking data.
Russia exported 627,000 b/d of Urals crude to India in April compared to according to 274,000 b/d and zero in March and February respectively, according to data from commodity intelligence firm Kpler.
Seaborne Urals crude exports averaged 2.24 million b/d, its highest since May 2019, despite sanctions and boycotts by several of Europe's refiners, Kpler data showed.
Until Russia's invasion of Ukraine, India very rarely bought Russian oil. But with Russian crude trading at record-lows in recent week weeks, Indian refiners have been unable to resist buying cheap crude despite pressure from Western governments.
The medium sour grade Urals was assessed at its lowest level ever relative to Dated Brent at minus $39.40/b CIF Rotterdam on April 29, according to S&P Global Commodity Insights' Platts assessment.
The price of Russian Urals CIF Rotterdam averaged $69.89/b in April, according to Platts data. This compares with a monthly average of $104.40/b for United Kingdom's Forties, which is similar in quality to Urals.
Russia has been desperate to find new customers after a dramatic decline in interest for its oil among Western consumers and it has found an opportunistic buyer in India, according to trading sources.
"Indian refiners are always desperate for a bargain. Russian crude is so cheap compared to other alternatives. They just could not resist Russian oil at these prices," said a Geneva-based crude trader.
Russian Urals crude exports to India were as less as 16,000 b/d and 32,000 b/d in 2020 and 2021 respectively, Kpler data showed.
These shipments are heading to several of Indian's refineries such as Reliance's two refineries in Jamnagar which have a capacity of 1.36 million b/d, Nayara Energy's 400,000 b/d site in Vadinar, Indian Oil Corporation's 300,000 b/d Panipat refinery, Hindustan Petroleum Corp Limited's 166,000 b/d Vizag plant and Bharat Petroleum Corp Limited's 310,000 b/d Kochi refinery.
Despite strengthening energy ties between the two countries, India has not been an active buyer of Russian crude oil, mainly due to economic and logistical issues. Urals crude, which is exported from the Baltic and Black Sea ports, involves long shipping voyages, and even Russian ESPO crude has not very convenient for Indian refiners to import. But at these prices, refiners have found it tough to ignore Russian crude.
India's newfound appetite for Russian oil has come under pressure from Western governments such as the US, UK and Germany. But the government has defended its purchases of Russian oil.
"The quantum of oil imports by India from Russia is a small fraction of what the rest of the world imports from Russia. Ultimately, we look at this from the perspective of energy security which not just India, but other countries are also pursuing," India's Foreign secretary Vinay Kwatra said at a press conference on May 2.
India's oil demand is also rebounding sharply as the country's economy is on an upward curve after it emerges from COVID-19.
Russian crude accounted for less than 3% of the around 4.3 million b/d crude that India imported in 2021, according to S&P Global Commodity Insights.
This comes as the EU is likely to propose an embargo on Russian oil in its next sanctions package against Moscow this week, according to Germany's economy minister, but may carve out exceptions for countries such as Hungary and Slovakia that continue to oppose a halt.
But Indian refiners' purchases of Russian crude could scale down with the tightening of sanctions by the EU and US from mid-May, which might hit logistics. The bulk of India's refiners bought this crude on a delivered basis, with sellers bearing costs related to insurance and shipping.
India, which has recently emerged as the world's third-largest crude oil importer, has been hugely reliant on crudes from the Middle East and West Africa, but it has been diversifying its suppliers over the past few years.
Russia is a significant supplier of oil to the world, exporting more than 7 million b/d of crude and petroleum products, or some 13% of total oil trade.
Europe is particularly dependent on Russian oil and was importing about 2.7 million b/d of crude and another 1.5 million b/d products, mostly diesel, before the invasion of Ukraine.
But self-sanctioning by some European refiners and independent traders has already slashed seaborne flows of Russia's Urals crude, heavy fuel oil, VGO, and naphtha into the region.