Russia oil trade: Not much headroom available to expand Indian imports beyond current levels

Even as India has emerged as the largest buyer of Russia’s seaborne crude oil, surpassing China, the level of Imports by the world’s third largest energy guzzler are expected to remain in the range of 1.9 million barrels per day (mb/d) going ahead.

“We believe that India will struggle to increase imports of Russian crude much beyond 1.9 mb/d due to technical constraints in the refining system,” S&P Global Commodity Insights told businessline.

Indian crude oil imports from Russia clocked an average of 1.9 mb/d in May this year, accounting for more than 40 per cent of the total in-bound shipments.

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Import volumes

Daniel Evans, Global Head of Fuels and Refining at S&P Global Commodity Insights, said that he does not anticipate a “big swing” in crude oil export volumes from Russia.

“I think not on a sustained basis. We don’t see a big swing, for example, from Russia exporting a mix of crude and product to exporting much more crude. I think they will continue to run the domestic refining system, remain self-sufficient on gasoline inside of Russia. That would put products in the international markets, but we are not going to see this big swing towards exporting more crude,” he said on the increase in import volumes.

Evans emphasised that from a buyer’s perspective, there are three questions that really could limit what people would be willing to take from Russia.

“One of them is economics, does it make more sense to buy more Russian crude? Technically, can you run more Russian crude through your refining system, and then strategically does it make sense to increase your dependence on a single supply,” he explained.

Refined product exports

Evans pointed out that India’s rising domestic consumption and opportunities for increasing export of refined petroleum products is a “nice problem”.

“On one hand we see a strong Indian economy relative to other parts of the world that’s obviously positive for demand and contributes to keeping more of the domestic production in the market. On the other hand, we see the economics being favourable for increasing runs at a fairly high level. So, I think there is a balance to be found. Yes, you got higher runs on one side, but you also got higher domestic demand to meet. In a way it is a nice problem,” he added.

The domestic demand for refined products stood at 4.8 mb/d in 2022 and is expected to rise to 5 mb/d in 2023 and 5.2 mb/d in 2024.

On the Russia-India oil trade relationship, he said, “Our view is that some of the trade flows that have been established in the last 12-18 months are there for the foreseeable future. So, we do expect Russia to rely on the new customers it has found for crude and product.”

S&P expects India to be a net exporter of naphtha, gasoline, jet/ kero and gasoil. The net export numbers for the sum of those products stood at 1.1 million b/d in 2022 and is expected to be flat in 2023 calendar year. It is likely to decline to 1 mb/d next year.

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