India may see lower savings from Russian oil in 2024 as discounts dip

Russian imports accounted for 39% of India's overall crude imports last year from 16% in 2022

Indian imports of Russian crude oil may stabilise or even decline in 2024 from record 2023 levels amid shrinking discounts on oil, lower output levels and a rebound in Middle East supplies, according to ship tracking data and industry officials. This may impact the billions of dollars in annual savings that India made from imports of Russian oil last year.

Imports of Russian oil jumped by a record 140 per cent in calendar 2023 to 1.79 million barrels per day from 740,400 b/d in 2022, when Russia marched into Ukraine in February, and from just 102,000 b/d in 2021, according to data from Paris-based market intelligence agency Kpler.

The surge in Russian imports last year, which accounted for 39 per cent of India’s overall crude imports last year from 16 per cent a year earlier, was accompanied by a decline in purchases from India’s traditional suppliers in the Middle East. Shipments from Iraq, Saudi Arabia and United Arab Emirates, the top three Gulf suppliers to India, fell by 17 per cent last year to 1.88 million b/d.

Russian Urals oil is now an important part of India's crude purchases as refiners are now proficient in processing Russian grades, said R Ramachandran, former refinery head of Bharat Petroleum and now an oil industry consultant.

Discounts on Russian grades have declined by more than half to around $4-$5 per barrel now from $11-$13/bbl in early 2023, two Mumbai-based refining officials said. It is unlikely that Russian traders will offer record double-digit discounts this year because of higher demand for Russian export benchmark Urals grade, and amid lower production by Moscow, at least until the first quarter of this year, an industry official said.

A Mumbai-based refiner, who is responsible for Russian purchases, said that he doesn’t expect discounts to expand, anticipating imports to average between 1.5 and 1.7 million b/d this year. Stricter enforcement of sanctions by the US in the last few months, where more than 10 Russian tankers carrying crude to China and India were charged with violating rules, has also led to an increase in freight rates by as much as 20 per cent.

These factors might reduce India’s savings on Russian oil imports, which averaged close to $4.5 billion, based on calculations from ship tracking and industry data. These savings may decline by a third – assuming an average $5/bbl discount on imports of 1.6 million b/d in 2024, leading to saving of over $3 billion for Indian refiners. It is still a tidy sum considering that oil companies are still coping with volatility in global crude rates and a freeze in pump prices of diesel and petrol since May 2022.

Imports of Russian crude in December averaged 1.44 million b/d, a fall of 14 per cent from November and from a record 2.16 million b/d in May, Kpler data show. Russian oil accounted for around 33 per cent of India's overall crude imports in December, six percentage points lower than the 2023 average.

Stricter policing of tankers carrying Russian oil amid reduction in Russian output contributed to falling Russian purchases, industry officials said. There were also some cases of issues with payments. Indian Oil imported only 258,000 b/d of Russian oil in December, declining by 57 per cent on the month. Bharat Petroleum was the biggest purchaser of Russian crude last month at 314,000 b/d, up by 60,000 b/d on the month, followed by Reliance Industries at 285,000 b/d, according to Kpler.

Washington has sent out notices to some 30 owners and managers of oil tankers to check on their compliance with the price cap and warned the shipping industry against any violations, US market publication 'Energy Intelligence' reported.

Deputy Prime Minister Alexander Novak has said that Russia’s oil exports in 2024 will be lower than initially planned because of commitments under Opec-plus agreements, Energy Intelligence reported. Russia agreed to cut crude exports by 500,000 b/d in August and 300,000 b/d in September-December, and agreed to extend the commitment – 300,000 b/d for crude and 200,000 b/d for oil products – to the end of the first quarter of 2024.