India imported a record 1.7 million barrels per day (b/d) of crude oil from Russia in November with inbound shipments surging to a record high ahead of the European Union’s (EU) December 5 import ban and the G7 price cap, S&P Global Commodity Insights said on Monday.

“While Russian crude flows to the EU slumped 308,000 b/d to average a record low of 464,000 b/d in the month (November 2022), Indian refiners stepped up their buying of Russian oil by 272,000 b/d to a record 1.17 million b/d,” S&P said.

According to S&P Global Commodities at Sea data, the seaborne exports of crude oil from Russia averaged at 3.07 million b/d in November with China and India accounting for 68 per cent of the share, which is higher than the share of the two Asian countries in October.

In October, Russia seaborne exports of the key commodity averaged at 3.09 million b/d with both the Asian energy guzzlers accounting for 58 per cent of the share.

A senior official from an oil marketing company (OMC) said refiners have contracted high volumes in anticipation of the disruptions due to the price cap and sanctions. Besides, many are taking advantage of the January 19 window.

The G7’s price cap mechanism, which controls access to shipping insurance and services for Russian oil, allows a transition period of 45 days for vessels carrying Russian-origin crude loaded before December 5 and unloaded at the final port of destination by January 19, 2023.

Crude discounts

S&P said the G7’s price cap may do little to initially further curb Russian oil export flows as its main export grade is currently trading below $60 per barrel.

“Russia’s medium sour Urals crude, once viewed as the key indicator for medium sour crudes trading in Europe, was assessed by Platts, part of S&P Global Commodity Insights, at $53.47 per barrel on December 2. In the East, Russia’s ESPO export grade was assessed by Platts at $72.86 on December 5, however,” it added.

As the December 5 deadline approached, discounts for the Urals to benchmark Dated Brent widened again after retracing ground from the record highs of above $40 per barrel reached in June 2022.

“On December 2, the discount for Urals crude loading at the Russian Baltic Sea port of Primorsk stood at $33.45 a barrel below Dated Brent, according to data from S&P Global. In Asia, the discount for Russia’s ESPO crude export stream versus Dubai has also widened in recent weeks to stand at $7.94 per barrel on December 5,” the data showed.

Higher shipments to Asia

S&P Global estimates that some 2 million b/d of Russian crude and products to Europe will ultimately need to find new buyers when the EU’s full oil sanctions on Moscow take effect February 5, 2023.

The agency expects about half of the 2 million b/d displaced from Europe will likely find new buyers in Asia although uncertainty over the available shadow tanker fleet able and willing to sidestep the G7’s price cap measures made forecasts difficult.

“Concurrent restrictions on G7 insurance and financing, a delayed rollout of the price cap, and Russia’s aversion to selling into Western policy constraints will combine to create an initial shortage of ships and buyers required to re-route roughly half of the 2 million b/d,” S&P Global’s chief geopolitical risk advisor said in a note.

Overall, S&P analysts forecast that initial dislocations will lower Russian crude and condensate output by 1 million b/d between November 2022 and March 2023, to 1.5 million b/d below pre-conflict levels.