Russia, Middle East turn equal contributors to India's crude basket as flows shift

Indian refiners may expand inflows of West African and US crude if the recent production cuts by OPEC+ squeezes supplies, although inflows from Russia are expected to dominate the import basket for the rest of the year, analysts and trade sources told S&P Global Commodity Insights.

While the recent cuts have raised concerns on the supply-demand imbalance, Indian refiners are not unduly worried as the move has failed to lift prices, an indication that demand revival is not as strong as expected earlier due to global economic growth and inflation concerns, they added.

"Overall, we expect supplies to be dominant from Russia and the Middle East, with each having 40%-45% share in Q3," said Himi Srivastava, analyst for South Asian oil markets at S&P Global Commodity Insights. "In case of cuts in production by OPEC+ and Russia, India may seek to buy additional barrels from West Africa and US depending upon economics," she added.

India imported 20.04 million mt, or an average 4.7 million b/d, of crude in May, up 0.5% from the previous month, data from the country's Petroleum Planning and Analysis Cell showed. For the January-May period, India imported 100 million mt, or 4.9 million b/d, up 3.1% year on year.

In May, imports from Russia reached a high of 2.1 million b/d, and for the first time exceeded combined flows from Saudi Arabia, Iraq, UAE, USA, and Kuwait. As per commerce ministry data, India's combined imports from traditional suppliers in the Middle East have reduced significantly from around 70% in January-April 2022 to 50% in the first four months of this year.

"For June, Russian imports continued to dominate the basket with 43% share while imports from West Africa and Latin America were seen declining along with supply from traditional Middle East countries," Srivastava added.

Market impact

Saudi Arabia on June 4 announced a unilateral 1 million b/d production cut in July, on top of 3.66 million b/d in collective OPEC+ quota reductions implemented since October. On July 3, the kingdom said it would extend that cut for August, along with a concurrent commitment from Russia to lower its crude exports by 500,000 b/d and Algeria to rein in 20,000 b/d of output.

However, the move has not yielded any price gains. Platts, part of S&P Global Commodity Insights, assessed the Dated Brent crude spot price at $76.855/b July 5, still below the $77.31/b seen on June 5 after the Saudi first cut announcement. Weak global economic indicators, particularly in China, has weighed on the market.

Analysts said that in order to compensate any potential slowdown in arrivals from the Middle East and Russia, India may eye barrels from Nigeria and Angola. Import of Latam and WAF grades of crude oil to India have declined significantly from Q4 2022 onwards due to increased imports of Russian light-low sulfur crude.

India's crude oil imports averaged around 4.9 million b/d in Q2 2023. S&P Global expects imports in Q3 to average around 4.5 million b/d as Q3 witnesses the typical monsoon season in India where product demand sees a downtrend and hence refineries plan their annual maintenances accordingly.

"The monsoon season will anyway keep demand at a low ebb. Therefore, there won't be any need to scramble for crude cargoes," said an Indian refining source.

Major shutdowns planned in Q3 would include the 156,000 b/d Bina refinery in July for about a month, IOC's 160,000 b/d Haldia refinery for about 20-25 days in the August-September period, and MRPL's shutdown of one CDU of 59,000 b/d in August-September.

Russian flows seen intact

India's imports of crude oil from Russia have witnessed a remarkable increase this year, reaching approximately 42% of the import basket in Q2.

"Looking ahead in 2023, the prospects for Russian crude oil flows to India appear promising. It is projected that these imports may account for approximately 40% to 45%, or max of around 2 to 2.3 million b/d, of India's total crude oil imports, if prices remain competitive," Srivastava added.

According to the Indian government officials, while spot purchases from Russia is expected to continue unabated, term contracts are unlikely as the country was facing internal issues, such as a failed military uprising.

"We don't have bias against crude of any origin and grade as long as prices remain within our reach and this policy holds true for Russian grades as well," said an Indian oil ministry official.

India's oil demand rose 9% year on year to 20.03 million mt, or 5.1 million b/d, in May, PPAC data showed. Demand for diesel and gasoline rose 12.8% and 11% year on year, respectively, in May. Demand for jet fuel rose by 12.4% on the year in the same month.

"Refining activities are expected to be robust in the second half of the year, driven by strong domestic demand. As we enter the second half of the year, demand will typically increase with the start of the festive and wedding season," said Sumit Ritolia, South Asia refinery economics analyst at S&P Global.

Recently, IMA Asia lifted its 2023 GDP forecast for India to 5.8% from a previous estimate of 5.4%. In terms of manufacturing, it said the sector grew at 4.5% year on year in Q1 2023 and is likely to rise to 5.1% for the whole of 2023.