India’s reliance on Russian oil could also be ‘approaching a restrict’

An oil refinery, operated by Bharat Petroleum Corp., in Mumbai, India.

Dhiraj Singh | Bloomberg | GettyImages

India’s means to import extra Russian oil might have hit a restrict for the remainder of the 12 months, analysts inform CNBC, citing infrastructural and political constraints, in addition to limitations to Russian oil flows.

“India will look to proceed Russian crude imports, however maybe it has reached its restrict, hampering any extra barrels,” in keeping with Janiv Shah, senior analyst at Rystad Vitality.

For the reason that Kremlin’s invasion of Ukraine in February final 12 months, India’s refiners have been snapping up discounted Russian oil.

Moscow has since leapfrogged to change into India’s main supply of crude oil, accounting for about 40% of India’s crude imports. June marked the tenth consecutive month-on-month improve in India’s imports of Russian crude, information from commodity intelligence agency Kpler confirmed.

“An unprecedented feat in latest historical past, particularly given the volumes in query — 2.2 million barrels per day in June,” Kpler’s lead crude analyst, Viktor Katona stated.

And that’s the best quantity that India’s imports of Russian oil can go — at the least for the remainder of the 12 months, in keeping with his predictions.

Any extra provide popping out of Russia… that flows into Asia, I think it’s executed. It’s most quantity now.

Daniel Hynes

senior commodity strategist, ANZ

“I might say 2.2 million b/d would be the peak this 12 months… We imagine India’s imports of Russian crude will see a slight downward correction to 2 million barrels per day. That would be the sustainable degree of shopping for,” he stated. .

Nevertheless, the quantity of crude oil consumed and processed by India’s refineries has now hit a “seasonal peak” and would solely pattern downwards from right here, Rystad Vitality’s Shah instructed CNBC in an e-mail.

His sentiments have been echoed by Katona, which highlighted that along with refineries being presently shut down, demand for oil is about to trickle down too.

“For the primary time this 12 months, a few of Indian refiners will probably be present process upkeep which was simply not the case in January to Might 2023 when there have been no turnarounds in any respect. Everybody was firing on all cylinders,” stated Katona.

India’s monsoon season began in early June, and the summer season interval is commonly related to decrease demand for oil merchandise on account of decrease mobility and development, Katona added.

Gas demand in India, the world’s third largest oil client, normally enters a lull throughout the four-month monsoon season. India’s whole oil demand in June slipped 3.7% month-on-month to 19.31 million tonnes, in keeping with information from India’s Petroleum Planning and Evaluation Cell.

‘Finite restrict’ to Russian oil flows?

And it appears the restrict goes each methods.

Flows popping out of Russia have a “finite restrict,” stated Daniel Hynes, senior commodity strategist at ANZ.

“Any extra provide popping out of Russia … that flows into Asia, I think it’s executed. It’s most quantity now,” he added.

Russian oil exports fell 600,000 barrels per day to 7.3 million barrels per day in June — the bottom since March 2021, in keeping with a latest report by the Worldwide Vitality Company.

Technically, the Indians may very well be shopping for extra, however they don’t need to antagonize the Center East an excessive amount of.

Victor Katona

lead crude analyst, Kpler

Russia additionally pledged to trim its crude oil exports earlier in July.

“India has talked in regards to the incapability to actually choose up considerably extra cargoes from Russia,” Hynes added.

Nevertheless, that’s to not say that India’s refiners is not going to try and attempt for an additional all-time excessive import of Russian oil subsequent 12 months, stated Kpler’s Katona.

“Most likely within the March-to-Might interval once more,” he stated, mentioning that demand at the moment will probably be “unrestricted from the Indian aspect and Russian export availability will probably be as soon as once more boosted by refinery turnarounds.”

Politics issues: India and the Center East

Nevertheless, India wants to take care of its relationship with different exporters too, particularly key suppliers within the Center East.

In line with Rystad information, 55% of India’s latest seaborne medium bitter imports have been from Russia, whereas imports from the Center East sank to a “historic low of 40%.”

“India could also be approaching a restrict in its reliance on Russian crude, as it could nonetheless have to safe long-term provide agreements with Center Jap suppliers,” Shah stated.

Crude imports from the Center East area dropped 21.7% to eight.68 kilo tonnes in June in comparison with the beginning of the 12 months, information from Refinitiv confirmed.

Medium bitter crude provides to India have a tendency to come back underneath annual time period contracts, which have minimal buy agreements.

“Technically, the Indians may very well be shopping for extra, however they don’t need to antagonize the Center East an excessive amount of,” stated Kpler’s Katona. “Politics matter, too,” he stated.

Nevertheless, Indian consumers are notably price-sensitive, and will nonetheless forsake different nations’ crude for Russia’s on the proper value.

Indian refiners can all the time take extra Russian [crude] on the expense of different grades, eg the Center Jap ones, if the value disparity widens,” stated director of Refinitiv Oil Analysis in Asia, Yaw Yan Chong.

Russian exports to India have soared greater than 10 instances since February final 12 months, capturing from a pre-invasion common of simply 350,000 metric tonne per 30 days to a post-invasion common of 4.57 million metric tonne per 30 days from March 2023 onwards, he stated.

Yaw expects India will nonetheless pursue Russian imports at elevated ranges “for so long as Russian.” [crude] are underneath [sanction] and shunned by their conventional European consumers.”