S&P Global Commodity Insights: Russian crude demand in India holds firm amidst Red Sea threats

Despite looming threats and increased tensions in the Red Sea region, India's demand for Russian crude remains resilient, with no known diversions reported thus far.

Analysis from S&P Global Commodity Insights indicates that while Indian refineries have moderated their appetite for Russian crude in recent months compared to the first half of 2023, Russia maintains its position as the top supplier, contributing over 35 per cent of India's total crude imports.

The slowdown in Indian refinery interest is attributed to a confluence of factors, including a rise in Middle Eastern flows, weather-related challenges at Russian ports, heightened refinery maintenance, and amplified scrutiny on ships transporting Russian oil.

Notwithstanding this dip, industry experts anticipate a rebound in the coming months. This resurgence is expected as crude runs are projected to increase post-maintenance, buoyed by robust refining margins and the imperative to meet seasonal demand growth.

The data shows that crude imports and lifting indications from major Middle Eastern suppliers, particularly Iraq and Saudi Arabia, have witnessed an upswing in the fourth quarter and are expected to continue into Q1 2024.

This increase is largely linked to the obligation to fulfil the current year's term commitments by public refiners, which can vary by approximately 10 per cent of their term commitment with crude suppliers.

During October and November, elevated maintenance activities led to an overall reduction in crude imports. India's refinery Crude Distillation Unit (CDU) maintenance peaked in October at around 600,000 barrels per day.

Notably, there was a surge in crude oil residue imports from Russia, reaching 170,000 barrels per day in October and is anticipated to reach an all-time high of around 200,000 barrels per day in December.

The series of attacks on shipping in the Red Sea has prompted traders and suppliers to explore alternative routes, considering the Cape of Good Hope. However, India's crude imports from Russia remain unaffected as of now.

According to the latest information from the Central Asia Shipping (CAS) data as of December 27, the Red Sea route remains the preferred option for traders supplying Russian crude to Indian refiners.

Crucially, Russia, including the Caspian Pipeline Consortium, presently holds a substantial volume of oil at sea. CAS data reveals that Russia has approximately 112 million barrels of oil on water, with a minimum of 43.7 million barrels destined for India.

Significantly, 19.2 million barrels are strategically positioned near the Indian subcontinent, covering the Arabian Sea, Indian Ocean East, and Southeast Asia.

In the event of disruptions, refiners or traders can tap into these volumes to sustain refinery operations. In the face of potential escalation in Red Sea attacks, no decrease in Russian volume is anticipated. However, there is speculation that US/Latin American crude volumes may opt for the Cape of Good Hope shipping route.

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

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