Russia beats EU embargo, G-7 price cap on crude with the help of Indian imports
More crude is flowing to Asia with India increasing imports to 1.2 million barrels per day (bpd) in December compared to 0.95 million bpd in November
With the help of crude imports by India, Russia has managed to beat the European Union embargo and the G-7 price cap on the Russian crude. In fact, there has been a strong increase in Russian seaborne crude exports, mainly from ports in the country’s west, according to industry sources.
More crude is flowing to Asia with India increasing imports to 1.2 million barrels per day (bpd) in December compared to 0.95 million bpd in November. The Urals blend crude from western ports currently sells at a discount of about $40 per barrel to the Brent price, in the range of $40 to $45 per barrel.
The western oil embargo had floundered on the defiance of the Biden administration-sponsored call by India and China. Now after a month and half of the EU enforcing a price cap on Russian crude, it is clear that the export of Russian crude has in reality gone up from previous levels.
According to Rystad Energy, which is closely monitoring crude oil movements across the world, Russian crude oil exports by sea, excluding CPC Blend and KEBCO, rose to 3.2 million bpd in the second week of January and reached a 10-week high. The four-week average rose from 2.55 million bpd in the first week of 2023 to 2.91 million bpd in the second week.
In terms of geography, the main factor is the increase in shipments from ports in Russia’s western region, which rose 0.4 million bpd week-on-week to a 10-week high of 2.3 million bpd. This could mean that Russia has begun to redirect lost export volumes via the Druzhba pipeline through its western ports.
Current estimates for the period between 1 and 15 January average 3.1 million bpd of shipments, meaning that flows have rebounded to October-November 2022 levels after dropping to 2.6 million bpd in December. But Rystad adds a word of caution that that it may be too early to draw any definitive conclusion.
The current January trend is slightly better than Rystad’s own estimate of 2.9 million bpd. However, the agency says it is not revising the forecast upward at this point until there is confirmation that the current increase in flows is not a temporary blip.
The resilience shown by Russian seaborne exports is believed to be a result of the build-up of a fleet of tankers by Russia. According to current
data, the share of tankers operating with Russian oil and depending on western services and insurance has dropped from 60 percent during the Northern Hemisphere summer of 2022 to 30 percent after 5 December.
Rystad says identifying the final destinations of Russian oil remains a difficult task, although it remains uncontested that India and mainland China remain key buyers of Russian crude.
According to available data, about a quarter of the flows remain unidentified. For instance, in weeks 51 and 52 of 2022, the recipients of about 300,000 bpd of Russian oil remain unknown.
According to published accounts, Russian crude which amounted to hardly 1 percent of India’s import basket pre-Ukraine action has now increased to over 20 percent, more than what it used to import from Saudi Arabia and similar to imports from Iraq.
Higher imports by India and China helped Russia rode out the western sanctions quite remarkably in the initial phase. This more than made up for the disruptions in the Europe-bound offtakes, with the result that oil earnings had actually gone up.
In terms of prices, the price cap has had a significant effect on oil prices from Russia’s western ports, namely Urals, which currently accounts for about 45 percent of all Russian exports, including pipeline shipments. Urals from western ports currently sells at a discount of about $40 per barrel to the Brent price.
At the same time, eastern Russian delivery prices remain above the price cap, with ESPO traded in the range of $65 to $70 per barrel in December-January. Together with Sakhalin oil exports, these flows amount to almost 2 million bpd.
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