Indian refiners stock up Urals crude oil before Russian supply cut

Import of this grade of crude jumps 14% in a month to record high

Indian imports of Urals grade crude oil from the Russian Federation climbed 13-14 per cent month-on-month to a fresh high in July, according to ship tracking and Russian government data. But there has been a cloud over supplies in August with Russia  cutting its oil export.      

Urals oil — high sulphur, sour grade of petroleum — accounted for 76 per cent of India’s overall Russian purchases in July and a third of its total crude oil purchases, at 1.58 million barrels a day (bpd), loading data from Paris-based market intelligence agency Kpler shows. India’s crude imports in July were 4.7 million bpd. 
 

Urals crude alone exceeded the combined volume of Saudi Arabian and Iraqi oil in July by 3 million barrels for the entire month. Purchases of Urals grade in July increased by 130 per cent year-on-year as Indian refiners stocked up on the discounted fuel, fearing erosion of discounts and supplies in August and September, an official from a state refiner said. Russia is voluntarily cutting oil exports by 500,000 bpd in August, in addition to another 500,000 bpd it agreed to cut earlier this year, in sync with the output cuts announced by the Saudi Arabia-led Opec.
 

Russia would reduce shipments of Urals crude, its biggest export grade and by far the cheapest, said Vandana Hari, a Singapore-based energy expert, because Moscow seeks to minimise the damage to its oil revenues by maintaining exports of its premium grades. 
 

India bought around 2.1 million bpd of all Russian crudes in July, flat vis-à-vis June but double from a year earlier. Besides Urals crude, India imported premium, light, sweet varieties like Sokol, Novy Port, ESPO, and Varandey.
 

Refiners, especially state Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL), are bracing for output cuts in August and September of the Urals grade, a refining official said. He said discounts have halved in July to around $4 a barrel at the refinery gate, and may decline further because there’s more demand for the crude and potentially lower supplies.
 

The tightness in Urals oil, coupled with European benchmark Brent crude exceeding $80 a barrel, has led to lower discounts, with the grade trading over the $60 a barrel price cap imposed by the G7 nations, according to Argus data. Premium Russian grades like ESPO and Sokol typically trade over the price cap, with Russian and Chinese suppliers and shadow traders arranging their own ships and insurance, a refining official said.
 

Western powers have denied the provision of shipping and insurance services for any Russian barrel trading over $60 a barrel but stopped short of barring payments for the flows.
 

Indian imports of Russian oil have surged in the past 18 months after Russia launched an attack on Ukraine in February 2022, roiling global oil markets. Russian supplies accounted for 44 per cent of its total crude imports in July, maintaining a 40 per cent-plus share since April, from a 1-2 per cent share in 2021. Russian exports have sustained after strong backing from New Delhi, which has shielded Indian companies from Western pressure. Indian Oil remained the top importer of Russian crude in July. It bought 610, 000 bpd in July, against 516,000 bpd by Reliance Industries. 
 

Iraqi and Saudi Arabian shares came in at 20 per cent and 11 per cent, respectively, compared to 18 per cent and 16 per cent in June. The UAE supplied 6 per cent of India’s oil and the US 5 per cent in July. West Asian suppliers, especially Saudi Arabia and the UAE, have seen their shares shrink because of the premiums they charge compared to Russian rates.