Nearly four months after Russia invaded Ukraine, Russian Urals crude has seen a shift in flow from its traditional market in Europe to Asia. Since the beginning of the war, based on the average of March to May 2022, Indian imports of Urals crude have increased by 658% compared to 2021 levels, while for China, the increase is by 205% and for Asia as a whole by 347%, Rystad Energy research shows.
India has become the main importer of the Urals in the region, due to the crude’s attractive margin over Middle Eastern grades, which have traditionally been the country’s staple.
Since the Urals have a profile similar to Middle Eastern oil grades and an advantageous lower sulfur content, Indian refiners have traded Middle Eastern crudes in favor of the Urals for their refining processing. As long as the Urals discount is maintained, it will have a huge margin advantage over other grades of crude, meaning Indian refiners are likely to maximize imports from the Urals.
Since European refiners began avoiding Russian oil in late February, imports of Russian crude oil into Europe have fallen by 554,000 barrels per day (bpd), from 2.04 million bpd to 1.49 million bpd between March and May. Imports of Russian-origin oil by Asian refiners (including China) saw a corresponding increase of 503,000 bpd, from the January-February 2022 average of 1.14 million bpd to a March-to-February 2022 average. May of 1.517 million bpd.
The expectation that Russian crude would cease to be traded on international markets did not materialize, and instead the steep discount on Russian crude saw ships redirected to alternative markets. While the cost of funding these vessels and trades has increased dramatically due to the lockdown in the Western financial system, the Urals discount is too attractive for some refiners to ignore. As with Iranian oil in the past, once Russian crude is refined, it will become almost impossible to distinguish between these barrels and others when they re-enter the international market.
“India has historically taken very little Russian oil, but the war in Ukraine and European Union (EU) embargoes on Russian-origin oil have resulted in a rebalancing of oil trade flows, crude oil of Russian origin being diverted from Europe to India and China instead.Rebates on Russian-origin crude oil must remain high to provide an attractive refining margin in addition to offsetting the high costs of insurance and freight associated with the purchase and shipment of crude oil of Russian origin.
For now, it is purely economics that Indian and Chinese refiners are importing more Russian-origin crude oil for processing, as this oil is cheap and offers one of the highest crude refining margins. high compared to other crude grades. Tracking what happens to Russian crude will be a challenge – Europe could end up importing gasoline, diesel and other products from India mixed in the Russian Urals,” says Wei Cheong Ho, vice -President Downstream at Rystad Energy.