State refiners may face margin pressure as cheap Russian oil imports dip

State-run refiners could face margin pressure after the share of discounted Russian oil in India’s imports dipped to a year’s low in January. Volumes inched up from December, when fresh US sanctions were introduced, but were still 11 per cent lower in January than in November, according to ship tracking data and industry officials.
 

The share of state-owned oil firms, excluding joint-sector HMEL, in Russian crude imports shrunk to 41 per cent in January from 54 per cent in December, according to calculations based on Kpler data. The reduction in discounted Russian supplies will affect gross refining margins as cheaper crude contributes to the profits of Indian Oil, Bharat Petroleum and Hindustan Petroleum, refining officials say. Private refiners Reliance Industries, Nayara Energy and joint sector refiner HMEL accounted for the rest. Interoceanic, whose details are unknown, brought in a million barrels in January, and there was a record 4.8 million barrels bought by the “others” category. West Asia and Africa, which sell fully priced oil, gained market share at Moscow’s expense.

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“The increased US sanctions on shipping companies that have violated the price cap is likely to tighten the vessel supply available to load Russian crude, at least in the near-term, pushing up freight premiums and narrowing the price competitiveness of Russian crude with Middle East crude,” said Serena Huang, head of Asia-Pacific market analysis at market intelligence agency Vortexa. “The recent attacks on tankers laden with Russian oil in the Red Sea have added another hurdle by increasing the risk of moving Russian barrels to the East.”
 

Russia accounted for only 31.6 per cent of India’s 4.75 million barrels per day of crude oil imports in January, the lowest since a 29.3 per cent share a year earlier, when the G-7 group of nations enforced a $60 per barrel price cap on exports of Russian crude, according to loading data by Paris-based market intelligence agency Kpler. The share has fallen by 15 percentage points to 1.5 million bpd since a record 46 per cent in May. It was 33 per cent in December and 37 per cent in November, a month prior to the US sanctions on Russian shipping companies.

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The share of Russian crude in Indian Oil’s overall crude imports has dropped to below 12 per cent of its total crude imports in January from 34 per cent in November, Kpler data shows. Issues with the delivery of 10 cargoes of Sokol crude in December had trimmed the share to 18 per cent. BPCL’s share of Russian crude in the October-December quarter averaged 40 per cent of its overall imports, company officials said on an earnings call. That has shrunk to 25 per cent in January, Kpler data shows.
 

Iraq gained the most from Russia’s decline, ratcheting up a 25 per cent share, the highest in more than a year, at around 1.2 million bpd. The gap between supplies of both nations was the narrowest since December 2022. Shipments of Nigerian grades — light, sweet varieties, similar to Russian Sokol, deliveries of which were hurt by the new US sanctions — tripled in both January and December from November. No Sokol cargoes were imported in December and January.

 

“Discounts on Russian crude have moderated, and we think they will be stable unless the Red Sea situation worsens,” a top Bharat Petroleum official said on an earnings call.
 

Last week, Yemen-based Houthi rebels fired a missile at Achilles, a ship operated by Gaurik Ship Management that was carrying crude oil to India. It was crossing the Suez and heading to the Red Sea when fired upon, the first known attack on a Russian crude tanker.
 

“I would not be surprised if Indian refiners turn more to Middle East crude once again to meet their crude import requirements in the months ahead,” Huang of Vortexa said.
 

However, the BPCL official said the company had faced no interruption in Russian supplies. Another official said Russia was well-networked with both Iran and the rebels and could influence them not to attack Russian ships.
 

“There is an observable increase in oil imports from the Middle East,” said Petras Katinas, energy analyst at Finnish think tank CREA. Recently, the decrease in the price differential between Urals and West Asian crude could be identified as contributing to a decline in Russian oil imports to India, he added.
 

Russia had a 37 per cent share in November, prior to the two new sanctions by the Office of Foreign Assets Control, an arm of the US Treasury Department.