• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

Is Iraq On The Brink Of Civil War?

Kurdistan has dominated Middle Eastern…

Alt Text

New Iran Sanctions Could Send Oil Prices Higher

Fresh sanctions on Iran could…

Alt Text

Saudis Lose Market Share To OPEC Rivals

OPEC members Iraq and Iran…

Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest.

More Info

What Is Behind The Surge Of Russian Oil Exports To India?

Oil

In the first five months of 2017, Indian companies have purchased more than 1 million tons of Russian crude supplied from Black Sea ports. In and of itself, there would be nothing extraordinary about it, were it not for the almost complete lack of supplies before 2017. India already surpassed its average Urals imports twentyfold (the past few years’ annual import volumes lingered around a mere 50ktpa) and is on course to increase the ratio higher still.

On one hand, Indian companies that acquired minor stakes in Rosneft’s Siberian assets have palpably intensified their purchases of Russian crude, which are a partial cause of the recent surge. On the other, those without any asset or joint venture-related link to Russia, have joined in, too. What is the root cause then, you ask? The price of Urals, vis-à-vis direct Middle East competitors has simply become too attractive not to buy.

Partly, this surge in Russian imports is a consequence of a recent convergence between Indian companies and Rosneft. A consortium comprising BHPL, IOC and Oil India purchased a 23.9 percent ($2 billion) stake in Vankorneft, Rosneft’s subsidiary which produces oil in one of East Siberia’s largest fields, as well as a 29.9 percent interest ($1.25 billion) in Taas-Yuryakh Neftegazodobycha, operator of the 240 MMBbl Srednebotuobinskoye field. Indian Oil Corporation (IOC), India’s largest enterprise, has bought 6 Suezmax-carried Urals cargoes this year for its Koyali refinery in Gujarat. A strange twist of fate, as the refinery was built with Soviet assistance subsequent to the signing of the Russo-Indian Treaty of Friendship and Cooperation in 1961. Bharat Petroleum Corporation Limited (BHPL) has stated that after the completion of its latest turnaround, which would allow it to process significantly more Urals, it intends on taking advantage of its close ties to Russian companies and start importing Urals. Related: The Battle For Natural Gas Dominance In Russia

Not only public sector companies have joined the Urals rally, independents, too, want to capitalize on the current favorable pricing rates. This June, when the $12.9 billion deal between Rosneft (49 percent), Trafigura (24 percent), UCP (24 percent) and the Ruia brothers is expected to be finalized, Essar Oil will come under the effective control of the Russian state company. Rosneft and Essar have already concluded a 10-year supply deal in 2015, stipulating the imports of Rosneft-supplied crude at 10 Mtpa for a 10-year period. Although Trafigura possesses downstream assets via its Puma Energy outlet (an investment firm, UPC has no downstream track record whatsoever), Rosneft will be the dominant voice in choosing crude for the 400 000 bpd Vadinar refinery. Apart from Russian crude molecules, Rosneft will bring in associated grades, too, as demonstrated by two deals in February 2017, under which it tentatively agreed on oil imports from Egypt and Libya to its new downstream asset.

Reliance, which runs the world’s largest refinery in Jamnagar (1.2 Mbpd production capacity), has so far imported four Urals cargoes this year. This, in itself, is a feat objectively reflecting the allure of Russian grades, as Reliance wields no assets in Russia. It has to be said that Reliance has seen its Saudi import channel significantly reduced as Riyadh was seeking to comply with OPEC production cut quotas, therefore it started its Urals imports out of necessity. Saudi Arabia and Iraq, which one year ago were vying for India’s top crude exporter spot, both cut their heavy crude supplies to India. Saudi Arabia will inevitably react, however, its recent declarations in favor of prolonging the OPEC production costs for another 9 months suggest that its reaction will not be rammed through international formats, but dealt with separately. Thus, notwithstanding the fate of the Vienna deal, Saudi Arabia seems intent on retaining its foothold over Indian imports – it already lowered its Asia-Pacific-bound medium and heavy crude formula prices for June 2017 and it might take further cuts, as circumstances may require. Related: Is Canada’s Oil Production Ready For A Resurgence?

Middle Eastern grades also became more expensive on the back of the OPEC production cuts. This can be pointedly demonstrated by the price differential between Urals Med and DME Omani crude, which are characteristics-wise almost identical (31° API vs 30.5° API, 1.5 percent Sulfur Content vs 1.4 percent). Throughout 2017, Urals Med wielded on average a 1 USD/bbl premium over DME Oman, even though only a year ago Omani crude traded at a 0.5-1.5 USD/bbl premium over Urals Med. More generally, the front-month Brent/Dubai exchange of futures for swaps has significantly narrowed, below 1.5 USD/bbl, contributing to the rise of Urals appeal. Moreover, not only the crude quotations are more favorable, but also freight costs tilted the balance in favor of Urals. In Q2 2017, freight costs from Novorossiysk to the Western coast of India were 1-2 USD/bbl lower than those from Oman.

Source: Thomson Reuters.

This sudden surge in Russian oil exports to India is mostly resulting from the pricing conditions created by the OPEC Agreement, upon the fate of which depends the sustainability of the Urals trend. The current favorable price environment will most likely evaporate as soon as the OPEC Agreement falls apart and this is bound to happen sooner or later as discrepancies between Signatories are mounting. Still, Russia’s Indian advance represents a fitting example on how peculiarly does the oil market work – just as Saudi Arabia is increasing its market share in Poland and other European countries traditionally perceived as being within Russia’s radius of interest, Russia is cutting its way to outlets that are traditionally dependent on Middle Eastern exporters. Still, the ongoing boom will most likely not be sustained for a long time, Moscow and Delhi will revert to their basics, their joint ventures in upstream.

By Viktor Katona for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News