Thea Fathanah Arbar, CNBC Indonesia
Tuesday, 18/07/2023 21:50 WIB
Jakarta, CNBC Indonesia – India’s ability to import more Russian oil may have hit a limit for the rest of the year. Analysts made this statement, citing infrastructure and political constraints, as well as the Kremlin’s limited oil flows.
“India will resume imports of Russian crude, but perhaps it has reached its limit, holding back additional barrels,” said Janiv Shah, senior analyst at Rystad Energy.
Since Russia’s invasion of Ukraine in February 2022, Indian refiners have been sourcing Moscow oil at discounted prices.
Since then Russia has become India’s main source of crude oil, accounting for around 40% of India’s crude oil imports. Data from commodity intelligence firm Kpler said June marked the 10th consecutive increase in imports of Russian crude oil in India.
“A feat unprecedented in recent history, especially given the volumes in question, 2.2 million bpd in June,” said Kpler’s principal crude analyst Viktor Katona.
Katona predicts that will be the highest volume of Russian oil imports from India, at least for the rest of the year.
“I would say 2.2 million bpd would be the peak of the year… We believe India’s Russian crude oil imports will see a slight downward correction to 2 million bpd. That will be a sustainable level of buying,” he said.
However, the volume of crude oil consumed and processed by Indian refineries has now reached a seasonal peak and will only tend to fall from here, said Shah of Rystad Energy.
His sentiment was also echoed by Katona who highlighted that apart from currently closed refineries, demand for oil would also fall.
“For the first time this year, some Indian refineries will be undergoing maintenance which did not happen in January to May 2023 when there is no turnover at all. Everyone is firing on all cylinders,” Katona said.
Katona added India’s rainy season starts in early June, and the summer period is often associated with lower demand for oil products as a result of lower mobility and construction.
Fuel demand in India, the world’s third largest oil consumer, usually enters a lull during the four months of the rainy season. India’s total oil demand in June fell 3.7% month-on-month to 19.31 million tons, according to data from the India Petroleum Planning and Analysis Cell.
Russian situation
Meanwhile Daniel Hynes, senior commodities strategist at ANZ, said outflows from Russia had limits. “Any additional supplies coming out of Russia… flowing into Asia, I suspect that’s done. It’s the maximum now,” he said.
Russian oil exports fell by 600,000 bpd to 7.3 million bpd in June, their lowest since March 2021, according to a recent report by the International Energy Agency.
Russia also promised to cut its crude oil exports in early July. “India has been talking about an inability to actually take on significant additional cargo from Russia,” Hynes added.
However, according to Katona, that doesn’t mean Indian refiners won’t try to try to try to import all-time high Russian oil next year.
“Most likely in the March to May period again,” he said, pointing out that demand by then would be unconstrained from the Indian side and Russian export availability boosted by refinery turnover.
Political issues of India and the Middle East
However, India also needs to maintain its relationship with other exporters, especially major suppliers in the Middle East.
According to Rystad data, 55% of India’s recent intermediate sour imports came from Russia, while imports from the Middle East fell to a historic low of 40%.
“India may be approaching the limit of its dependence on Russian crude oil, as it still needs to secure long-term supply agreements with Middle Eastern suppliers,” said Shah.
Data from Refinitiv showed imports of crude oil from the Middle East region fell 21.7% to 8.68 kilo tons in June compared to the beginning of the year. Supply of medium acid crude oil to India tends to come under annual futures contracts, which have minimum purchase agreements.
“Technically, Indians can buy more, but they don’t want to antagonize the Middle East too much,” says Katona of Kpler. “Politics is also important,” he said.
However, Indian buyers are highly price sensitive, and can still ditch other countries’ crude to buy Russian oil at the right price.
Russian exports to India have surged more than 10 times since February last year, jumping from a pre-invasion average of just 350,000 metric tonnes per month to a post-invasion average of 4.57 million metric tonnes per month from March 2023 onwards .
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2023-07-18 14:50:00
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