Crude oil shipments from India’s largest supplier have started to de-accelerate in the current month, which will continue in September as refiners in Russia increased runs coupled with voluntary cuts for both the months

However, the October-December quarter is likely to witness higher cargoes, by 12-15 per cent (against August-September), by the world’s third largest crude oil importer as Russia goes into seasonal refinery maintenance in autumn (second half of September) and continued uncertainty over China’s economic recovery.

Energy intelligence firm Kpler expects volumes to hover at 1.6 million barrels per day (mb/d) in August and September 2023.

“Imports are likely to average at 1.58-1.62 mb/d for August and September. In Q4 (2023), if Chinese inventories don’t deplete from record levels and economic recovery is delayed, it will import less, which would mean Indian imports from Russia will be higher averaging at 1.8-1.9 mb/d by 2023-end,” a trade source projected.

China’s crude imports are expected to fall back from near-record highs (June 2023), amid ample inventories, dwindling quotas, and uncertainties regarding the pace of recovery in oil demand, OPEC said in its monthly oil market report for August.

Monsoon maintenance

Kpler’s Lead Analyst (Dirty Products and Refining) Andon Pavlov told businessline, “Indeed, we are seeing some solid evidence that Russian refiners are ramping up runs in August, possibly keeping them somewhat elevated over early September.”

For the most part, this has to do with an impending change to Russia’s tax regime, which will slash a part of the state subsidy for domestic refiners for selling transportation fuels to the domestic market, instead of exporting it, he explained.

“This, and the looming maintenance in September, tell us that refinery runs (i.e. crude demand at home), are at a multi-month high level in Russia currently. This is also a factor behind the observed cuts in Russian crude exports. As for September, this is the first month of Russia’s seasonal autumn maintenance, so we expect a gradual increase in crude exports, in line with the easing of export curbs that Russia has recently announced,” Pavlov added.

On expectations of crude oil cargoes appreciating in October-December 2023, he said “Yes, the lacklustre outlook for Russian refining leaves little options for domestic crude exporters but to look for exports elsewhere, so Q4 looks like a period when we will be seeing stable if not higher volumes of Russian crude deliveries to India. Of course, to a degree, this is also contingent on Chinese buying, but so far, things look a bit unclear on that front.”

Price cap

Asked whether Urals breaching the G7 price cap and depleting Russian discounts ($6-8 per barrel) will impact India’s volumes, he said “Indeed, while margins have taken a beating, they are still attractive. But it’s not just crude that both countries are interested in trading. For instance, the Jamnagar refinery has been very active in buying Russian discounted VGO recently, probably amid a looming primary unit maintenance there (Russia) in September.”

So, as long as the deal works for all sides (it probably will remain lucrative enough, to keep flows in place), there is no reason to expect a change, Pavlov emphasised.

“If we have seen anything over the past year and a half, it is that the market always finds a way to adjust. If EU shippers refuse to carry Russian material, then there will be others who will be willing to bite the bullet and try to capitalise on the opportunity. So breaching the price cap doesn’t seem like a deal-breaker for now,” he added.