India's imports of Russian crude oil rose 4.5% year-on-year last year, reaching 1.764 million barrels per day, while China also seeks alternative supplies amid new U.S. sanctions on Russian producers. These sanctions have shifted oil trade from Europe to Asia, encouraging refiners to explore non-sanctioned sources, raising premiums for Middle Eastern and Brazilian crude. Notably, Yulong Petrochemical has acquired significant quantities of Abu Dhabi crude, and Bharat Petroleum has secured Oman crude, reflecting strong demand and strategic moves by both nations in a changing market.
In a notable trend, India's imports of Russian crude oil saw a 4.5% increase year-on-year for the first 11 months of last year, reaching an impressive 1.764 million barrels per day (bpd), which accounts for 36% of the nation's total imports. This surge reflects a proactive approach by Indian and Chinese refiners as they navigate the complexities of global oil supply amidst evolving geopolitical dynamics.
Recent developments have prompted refiners in both countries to intensify their search for crude oil supplies. Following the introduction of new U.S. sanctions targeting Russian oil producers and shipping vessels, traders report that the landscape of oil trade has shifted, particularly affecting Moscow’s primary customers.
On Friday, the U.S. Treasury announced sanctions against prominent Russian oil firms Gazprom Neft and Surgutneftegas, along with 183 vessels involved in transporting Russian oil. These measures aim to reduce the revenue that supports Russia's endeavors in Ukraine. As a result, various tankers previously engaged in transporting oil to India and China have now been redirected, as Western sanctions and a price cap imposed by the G7 countries in 2022 have rerouted Russian oil trade from Europe to Asia, including shipments from sanctioned Iran.
In a statement reflecting its position, China emphasized its opposition to unilateral U.S. sanctions. While these actions have impacted the sanctioned oil trade, they have simultaneously encouraged Chinese and Indian refiners to seek out non-sanctioned alternatives, tightening supply and elevating spot premiums for crude from regions such as the Middle East, Africa, and Brazil.
In a positive development, the new Chinese refiner Yulong Petrochemical has made significant strides by acquiring 4 million barrels of Abu Dhabi’s Upper Zakum crude for February and March deliveries from Totsa, the trading arm of TotalEnergies. This acquisition supports Yulong’s 400,000 bpd refining complex in Yantai, which commenced trial runs in September. Yulong has also expanded its sourcing, recently purchasing Angolan and Brazilian crude, signaling its commitment to diversifying supply chains.
Meanwhile, Indian refiners are also actively pursuing additional cargoes. Bharat Petroleum Corp Ltd recently secured 2 million barrels of Oman crude for February loading through Totsa, showcasing the ongoing demand for crude oil, particularly from the Middle East.
This robust demand is aiding Totsa in managing an excess of Middle Eastern crude supplies accumulated over recent months. As a response to these market dynamics, global Brent crude futures have climbed above $81 a barrel, reaching their highest levels since August. Spot premiums for Middle Eastern benchmark grades surged over 70%, indicating strong market activity.
The rise in premiums is not limited to Middle Eastern crude; Brazilian oil for March delivery has also seen significant premium increases, reflecting heightened interest and competition in the market.
A trading executive noted, "The biggest disruptions will be on shipping," highlighting potential complications with vessels linked to sanctioned operations. As the market evolves, there may be an increase in intermediaries facilitating oil from sanctioned producers, with a shift towards payments in Chinese yuan through China's Cross-border Interbank Payment System (CIPS).
Additionally, the sanctions announcement included two Chinese oil logistics firms from Shandong province, which primarily manage oil transportation to domestic refiners. Given their operational focus and payment structure, the impact of these sanctions on their activities is expected to be minimal.
Overall, the ongoing adjustments in the global oil market present both challenges and opportunities, with India and China strategically positioning themselves to secure reliable crude supplies amidst shifting trade dynamics.
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