India's Demand For Russian Crude Remains Resilient Amid Red Sea Threats

S&P Global has said that India's demand for Russian crude remains resilient despite Red Sea threats with no known diversions seen so far. Indian refinery appetite for Russian crude has slowed in recent months compared with the first half of 2023. 

However, Russia still maintains its position as India's top supplier, accounting for over 35 per cent of India's total crude imports, according to the S&P Global Commodity Insights.

The recent slowdown can be attributed to a rise in Middle Eastern flows, weather-related issues at Russian ports, heightened refinery maintenance, and increased scrutiny on ships carrying Russian oil. 

Despite the current dip, it is anticipated that inflows will likely bounce back in the coming months. This resurgence is expected, as crude runs are projected to increase post-maintenance, especially with refining margins remaining robust and a need to meet seasonal demand growth.

Crude imports/lifting indications from major Middle Eastern suppliers, Iraq, and Saudi Arabia, have experienced an uptick in the fourth quarter and for Q1 2024. This increase may be attributed to the necessity of fulfilling the current year’s term commitments by public refiners. 

"Typically, refinery purchases can fluctuate by approximately 10 per cent of their term commitment with crude suppliers," S&P Global stated. Elevated maintenance activities during October and November resulted in an overall reduction in crude imports. 

Red-Sea attacks and their implication on India’s oil trade

A series of attacks on shipping in the Red Sea has compelled traders and suppliers to explore alternative routes via the Cape of Good Hope. Despite this, India's crude imports from Russia remain unaffected so far. According to CAS, as of 27 December, the Red Sea route remains the preferred option for traders supplying Russian crude to Indian refiners. 

An essential point to emphasize is that Russia, including the Caspian Pipeline Consortium, presently holds a substantial volume of oil at sea. According to the latest data from CAS, Russia has approximately 112 million barrels of oil on water, with a minimum of 43.7 million barrels destined for India. 

Notably, 19.2 million barrels are positioned in proximity to the Indian subcontinent, covering the Arabian Sea, Indian Ocean East, and Southeast Asia. In the case of any disruptions, refiners or traders have the option to utilize these volumes to sustain refinery operations.

In the event of an escalation in Red Sea attacks, no decrease in Russian volume is anticipated. However, there is a potential expectation that US/ Latin American crude volumes may opt for the Cape of Good Hope shipping route. 

Projections indicate that India's crude imports from Russia could constitute around 35 to 45 per cent of the country's overall imports, provided that competitive pricing is maintained in comparison to alternative sources.

India's refinery CDU maintenance peaked in October at around 600,000 b/d. Notably, there was an increase in the imports of crude oil residue from Russia to 170,000 b/d in October, which is expected to reach an all-time high of around 200,000 b/d in December.