India, which has been buying large volumes of Russian crude since the Russian invasion of Ukraine to take advantage of cheap oil, is set to slow purchases of Russian oil this month and look to more African and Middle Eastern supply as shipping rates on longer voyages have jumped.
Before the war in Ukraine, India was a small marginal buyer of Russian oil. After Western buyers started shunning crude from Russia, India became a top destination for Russian oil exports alongside China.
Indian refiners haven't expressed hesitation to deal with Russia—their primary incentive to buy has been the much cheaper Russian oil than international benchmarks and similar grades from the Middle East and Africa.
However, with a recent surge in freight rates, Russian oil doesn't look so cheap. Moreover, the travel time from Russia's Far East, where the ESPO grade is loading for exports, is a month to India, compared to a week necessary for a Middle Eastern cargo to reach India.
In September, Indian refiners are not expected to buy any ESPO crude from Russia because of the higher shipping rates, industry sources told Reuters on Thursday.
"On net back basis after factoring in the freight, the landed cost of ESPO is turning out to be $5-$7 a barrel costlier in comparison to similar grades from other countries such as UAE's Murban," an Indian industry source with knowledge of the deals and prices told Reuters.
Refiners in India prefer to purchase crude from Africa and the Middle East instead of Russia's ESPO, the source added.
This shift in India buying comes just a few months after Russia overtook Saudi Arabia to become India's second-largest supplier of crude oil earlier this year.
As a result of no ESPO loading for India this month, more volumes of that grade would likely go to China, which is much closer to Russia's Far Eastern oil export ports.
By Charles Kennedy for Oilprice.com
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