India is beginning to exhaust its Russian oil splurge

India is beginning to exhaust its Russian oil splurge

MUMBAI: Visitors can see enormous oil tankers offloading their cargo at two refineries on the city's southeast coast from an island fort outside the old district of Mumbai.

Before a year ago, it was nearly guaranteed that such ships were transporting crude from one of the dozen constant suppliers, including the Middle East, the US, and West Africa. Russian oil is more likely to be used nowadays.

According to statistics from analytics company Kpler, Moscow supplied 46% of India's oil imports in the past month, a startling increase from less than 2% before to the invasion of Ukraine. May set a record in terms of absolute numbers. Even while imports of Russian oil from China have increased significantly over the past year and reached records, India, a vital US ally, has stepped in to support the Russian economy.

Today, the question is whether that shopping binge can continue as India's discounts get smaller and financial pressure on the Kremlin grows as money is required more urgently than ever to quell domestic challenges to President Vladimir Putin's authority.

The Kremlin has found the current shift advantageous as it searches for new markets as Western consumers and major oil merchants retreat. It has been successful for India as well, which was anxious to purchase cheaper fuel to control inflation. While Saudi oil was selling for $86.96 per barrel in April, the average price of Russian crude shipped to Indian beaches was $68.21 per barrel.

Jamal Qureshi, Managing Director for Strategy and Analysis at Petro-Logistics, remarked that Indian refiners went above and beyond what we had anticipated being achievable. We anticipated that they would soon replace grades that resembled Urals, but they have also eliminated classes beyond them.

The refineries on Elephanta Island, at least, indicate that the surge is about to cool.

Infrastructure is the first thing. Both of these plants were never intended to accept Russian barrels, despite the fact that analytics used to determine refineries' ideal feedstock have mostly led towards Russia's Urals blend. Indian domestic crude, which is less sulphurous than Russian oil, is processed at the Bharat Petroleum Corp Ltd., or BPCL, facility.

More Russian barrels would result in the production of more fuel oil, a sluggish oil that is sometimes offered at a discount. Or expensive re-purposing, which Bloomberg's executives claimed they were reluctant to do.

"Refiners at this point aren't interested in any changes in configuration," said Rajiv Agarwal, the technical leader at Engineers India Ltd., a state-owned firm which offers such projects with advice.

According to one executive who asked to remain anonymous because he was not authorised to speak to the media, approximately tenth of the crude processed at the BPCL refining in Mumbai is Russian. This is because the Mumbai facility lacks a coker, an equipment that facilitates the processing of heavier, sulphurous crude similar to that of Russia. That is less than at some of its more recent plants, where that number can reach 40%.

He claimed that refinery configurations were the main constraining factor, along with the worry about relying too heavily on a supply source that might be interrupted if sanctions are tightened. That would limit any possible growth to 2% or 3%.

R. Ramachandran, a former director of refineries at BPCL, claimed that Urals was never a preferred crude in the past. "Capital expenditures on plants is required and could require three to four years if pricing is right and refineries need to process the Urals as the majority of crude."

Emails for response were not answered by the media department of BPCL.

In contrast to nations like China, India also experiences a significant shortage of the commercial tanks required for blending, unlike some of Russia's other clients.

India doesn't need to distance itself from Russia. Some Russian crude supplies could be made more appealing to facilities that are straining to take more by combining various types of oil in storage tanks. The increase might be between 200,000 and 400,000 barrels per day, according to some executives.

There is also the issue of additional suppliers. In contrast to opportunistic buying, some refinery officials expressed concern that a long-term move might sour relations with current business partners, particularly Middle Eastern producers.

Russian spot purchases have predominated among buyers up to this point; this strategy succeeds when supplies are sufficient. Indian refiners have also recently been in talks to get more consistent flows from Russia, although the conversations have been delayed. However, a further uptick would necessitate increased government zeal to direct refiners.

The question moving forward is whether state-owned refiners can be persuaded to accept more Russian barrels than they have thus far. On the public side, that's where the majority of the potential area lies, said Qureshi of Petro-Logistics.

India's Principal Oil Suppliers Russia now provides about half of India's imports of crude oil, up from a market share of less than 2% before the conflict. Of course, politics are what's really going on behind any more acquisitions.

The two nations have a close relationship that dates back decades and is firmly grounded in security, despite the fact that Russia now has less economic clout than it did in the past. India's top weapon supplier is Moscow.

In contrast, Indian Prime Minister Narendra Modi received accolades last week in Washington, where the White House is only concerned that the inexpensive goods India does purchase will reduce income to the Kremlin while maintaining tanker traffic.