India a key player in the seismic shift in the global crude oil market

By K Raveendran

The seismic shift in the global crude oil market has begun to take effect. This is expected to manifest in tighter crude oil markets, as well as unprecedented changes in trade flows, especially of Russian oil from Europe to Asia. Russia is expected to redirect as much volume as possible to alternative markets and India, along with China, would be key players in this shift.

Rystad Energy has revealed that India has increased the import of Russian oil by 8 lakh barrels per day between February and April this year, boosted by the growing Urals discount offered by Moscow. The agency estimates that, should Russia offer further discounts, the volume could rise to perhaps a total of 1 million bpd to 2 million bpd.

In the past two months, buyers from all geographies have shown that political correctness can be offset by heavily discounted oil from Russia, leading to the assumption that some countries and refiners will cheat and continue to source from the Urals, especially if the discount is further expanded as the barrels are officially deemed untouchable by EU law.

However, there are significant infrastructure constraints to this switch, with only two pipelines, including a transit link through Kazakhstan, offering only 300,000 bpd of additional capacity. Of course, there is a serious challenge as more cargo would be moved by sea. , which means higher insurance costs, risk of penalties and in some cases garnishments.

The agency believes that the fallout from the Russian oil embargo currently being mulled over by the EU would have far-reaching consequences, driving oil prices higher in the short to medium term. As sanctions are negotiated, crude prices will remain elevated as war-related uncertainty persists and summer demand picks up in the coming weeks.

The EU is very close to enacting its proposed ban on imports of Russian oil, including sanctions on shipping and insurance. Since unanimity is required within the EU, and given Hungary’s current position in particular, a compromise version of a proposal by the European Commission president made on May 4 is being renegotiated in Brussels. But what seems to emerge from all these discussions is that the EU will act and impose an oil embargo, with certain exceptions for the landlocked countries of Hungary, Slovakia and the Czech Republic. The deal on the table apparently involves a six-month phase-out period for crude oil imports and eight months for petroleum products, including the crucial supply of around 1 million bpd of Russian diesel/gasoil to the EU market. .

If enacted into law, Rystad believes most EU members would likely comply with the ban but cut their crude purchases at slightly different rates, while Druzhba crude imports of almost 300,000 bpd in the three countries without coast would continue as before. least during the first six to eight months of the elimination period.

According to analysts, the possible EU shift between 2 million bpd and 3.4 million bpd should be a bullish signal for short-term pricing for the market for replacement barrels such as Brent and WTI. They also expect the discounts in the Urals to be further extended to attract more purchases from India and China. Since not all barrels can be directly exchanged, with possible shipping and insurance sanctions as part of the EU embargo plan further affecting movement, Russian exploration operations will be severely affected, possibly close to the scale of the lockdown induced by Covid-19 April 2020. -In s.

Russia has said its breakeven price for the Urals sale is around $45 a barrel, so the government is likely to opt for deep discounts to ensure a stream of budget revenue before enacting costly well closures.

The seasonal peak months of June, July and August will increase demand considerably as the travel season increases demand for road and jet fuel, and as the amount of oil burned in the Middle East during the travel period increases. summer for cooling purposes. Projections for global refinery operations see an increase of at least 4 million bpd between now and peak intake in July.

The expected seasonal rise, as well as the strength of the EU embargo push, has led analysts to maintain expectations that oil prices will remain supported into the third quarter of this year. The market had not fully priced in the news of the EU oil embargo, adding to the tightness in the crude market for non-Russian grades such as Brent and WTI. But much will depend on the magnitude of the unprecedented change in global crude oil trade flows that this may cause in the coming months. (IPA service)

The Indian publication, a key player in the seismic shift in the global crude oil market, first appeared on IPA Newspack.

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