In August, the shipments to China and India slumped to 3.9 million barrels per day (mb/d) from 4.7 mb/d in April and May 2023
In August, the shipments to China and India slumped to 3.9 million barrels per day (mb/d) from 4.7 mb/d in April and May 2023 | Photo Credit: Makhbubakhon Ismatova

India and China, which accounted for 80 per cent of Russia’s crude oil exports during May to July 2023, saw their share decline by about 30 per cent in August as the ex-Soviet state continued its production cuts, alongside Saudi Arabia, leading to a decline in volumes of the medium sour grade Ural.

“In August, the shipments to China and India slumped to 3.9 million barrels per day (mb/d) from 4.7 mb/d in April and May 2023 but accounted for more than half the total volumes,” the International Energy Agency (IEA) said in its latest oil market report.

According to IEA data, the world’s top two crude oil consumers accounted for 80 per cent of Russia’s total exports during May to July this year.

The decline in shipments to Russia’s top crude oil consumers has been impacted by the voluntary production cuts.

“After oil prices traded in relative calm during August, with volatility at multi-year lows, the decision by Saudi Arabia and Russia in early September to extend output cuts of a combined 1.3 mb/d through year-end triggered a price spike in North Sea Dated above $90 per barrel to a 10-month high,” IEA pointed out.

As forecast in this report for some time, oil markets were already tightening and in August observed global inventories plunged by a sharp 76.3 mb, or 2.46 mb/d, it added.

Narrowing discounts

JM Financial Institutional Securities, in a commentary on the IEA report, explained that Russia’s output was largely steady m-o-m at 9.5 mb/d in August. However, its oil exports were down 150,000 barrels per day (b/d) m-o-m at 7.2 mb/d last month (down 570,000 b.d y-o-y).

Russia’s export earnings rose by $1.8 billion m-o-m to $17.1 billion in August 2023 (though still down y-o-y) due to higher crude price and narrowing discount despite lower volume.

Discount on Russian crude was around $4-5 a barrel in May-July 2023 against $6-10 earlier.

Similarly, CareEdge, in its latest report said that Urals had mostly traded below the G-7 imposed price cap of $60 a barrel, but have breached the cap in recent weeks whereby it is trading at around $69 per barrel.

“Upon the rise in prices of the Urals, the share of Russian crude in India’s total crude oil sourcing basket declined to 34 per cent in August 2023 from nearly 40 per cent since the outbreak of the Russia-Ukraine war,” it added.

CareEdge expects that the availability of Russian crude for Indian refiners could remain constrained as long as Brent crude prices remain elevated.

India’s demand outlook

OPEC projected that a steady and healthy economic activity and ongoing air travel recovery will aid India’s oil demand in July-September 2023 to rise y-o-y by around 270,000 barrels per day (b/d).

“The government’s proposed increase in capital spending for construction and manufacturing is expected to boost the economic activity momentum. These factors, combined with a steady rise in airline activity, are set to support healthy oil demand growth. Transportation fuels – gasoline and jet fuel – are expected to be the main demand growth drivers in this quarter,” it added.

However, diesel demand is anticipated to be affected by the impact of the monsoon season from July to September.

“In Q4 2023, oil demand is expected to decelerate slightly, but is forecast to show y-o-y growth of 243,000 b/d, with transportation fuels – notably gasoline, diesel for transportation, and jet/kerosene – driving the growth,” it has projected.

Oil demand is expected to expand on average by 227,000 b/d y-o-y in Q1 2024 on the back of vigorous economic growth at 5.9 per cent. Healthy economic growth will support mobility and enable steady demand for distillates in the manufacturing sector. For the year, India is expected to see an average y-o-y oil demand growth of 220,000 b/d.