India’s import of Sokol crude from Russia, which ran into problems owing to Western sanctions and payment issues between Indian Oil and Russia’s Sakhalin-1 LLC last month, is likely to be resolved soon, letting the country’s import share from Russia bounce back to its earlier levels.
“Looking into January-February 2024, India’s imports will most probably recover from the trough of December and move back to 1.4-1.5 Mbd (million barrel a day),” said Viktor Katona, lead crude analysts at Kpler. “The Sokol cargoes weren’t re-routed because Indian refiners didn’t want them, rather because they couldn’t find a suitable solution to pay for them,” he said, while adding that the roadblock is expected to be cleared shortly and Sokol will be flowing to India again.
Further, the onset of Russian refinery maintenance in April and May is expected to release some additional 500,000-600,000 barrels per day of crude with peaking oil exports. “So another run towards India buying 2 million barrels a day of Russian crude in the spring months is highly possible,” Katona said. However, he also notes that outflows in the winter months will remain capped as the Kremlin maximizes its own refining and has less crude to export.
S&P Global Commodity Insights also notes that Russian inflows will likely bounce back in the coming months as crude runs are projected to increase post-maintenance, especially with refining margins remaining robust and a need to meet seasonal demand growth.
In addition to this, the landed price of Urals into the west coast India is roughly $7 per barrel cheaper than Saudi Arabia’s Arab Medium and roughly $6 per barrel cheaper than Iraq’s Basrah Medium delivered to the country, according to Kpler. So in terms of pricing, the incentive is still there, analysts say.
The landed price of Urals in the west coast India is trading at a $3 per barrel discount to Brent right now.
Russia presently has approximately 112 million barrels of oil on water, with a minimum of 43.7 million barrels destined for India, as per latest data by S&P Global Commodity Insights. Notably, 19.2 million barrels are positioned in proximity to the Indian subcontinent, covering the Arabian Sea, Indian Ocean East, and Southeast Asia, it said. “In the case of any disruptions, refiners or traders have the option to utilize these volumes to sustain refinery operations.”
As far as the Sokol-laden tankers idling around India’s coast for the past few days are concerned, the six tankers are now moving towards the Malacca strait and three have started to indicate China as their final destination, Financial Express has learnt. Earlier, only two of the six tankers had started moving to China.
“As the UAE banking delays of the Sakhalin-1 project operator continue, effectively being unable to fully relocate the trading of Sokol cargoes into the relatively calm waters of the Dubai trading world, China appears to be the final solution for some cargoes,” said Katona.
The country’s crude import from Russia had fallen to 11-month low to 1.28 million barrels a day in December due to lower arrivals of Urals caused by disruptions in Russian Black Sea port loading operations due to bad weather conditions in November, as per energy cargo tracker Vortexa. The country also saw nil imports of the Sokol grade for the first time in 13 months in December as a result of payment issues between Indian Oil Corp and Sakhalin-1 LLC.
Sakhalin-1 LLC, an arm of Russian oil major Rosneft has not been able to secure an account in the United Arab Emirates (UAE) in order to accept payments in dirhams and hence was not able to supply Sokol to IOC, The Indian Express had reported earlier.
“As an alternative, we could expect India to be importing replacement cargoes from their traditional suppliers in the Middle East. However, the upsides could be capped by a seasonal demand slowdown and bearish economic sentiments as we step into Q1,” said Serena Huang, crude analyst at Vortexa.
Indian refiners have so far bought 140,000 barrels per day of Sokol crude on an average aided by the fact that ONGC Videsh owns 20% of the Sakhalin-1 project and thus has direct hands on knowledge about the grade and production thereof.
Katona notes that Indian refiners are now relying mostly for Urals and Arctic grades when it comes to Russian-origin purchases, considering the very robust Chinese demand pull on ESPO (a grade of crude oil), limiting the volumes that remain available for Indian buyers.
Projections indicate that India’s crude imports from Russia could constitute around 35%-45% of the country’s overall imports, provided that competitive pricing is maintained in comparison to alternative sources, S&P Global Commodity Insights said.
Source: Financial Express