Most buyers are shunning Russian oil due to the Ukraine war.
Michael Siluk/UCG/Universal Images Group/Getty Images
- Russia is the world’s third-largest oil producer, but santions have dented demand for its products.
- As a result, Russian oil is trading extremely cheaply, making it more competitive as global oil prices surge.
- Price-sensitive buyers from China and India are buying cheap Russian oil.
Sweeping sanctions against Russia have hit the country’s oil exports, sending prices down so much that some buyers from China and India are enticed to snap up some cargoes.
Russia is the world’s third-largest producer oil producer, but the country has fallen out of favor with buyers and investors after its invasion of Ukraine. The US and the UK have banned Russian imports, but neither country is a large buyer of Russian energy products. The European Union, which relies on Russia for 40% of its natural gas and about 30% of its oil, is considering a ban as well. Meanwhile, energy companies, from producer BP to oil services firm Schlumberger, are retreating from the Russian market.
As a result, even though Brent crude oil futures have soared, Russia’s flagship Urals oil is trading at a record discount to dated Brent, according to S&P Global Commodity Insights.
On Wednesday, S&P Global Platts assesed Urals at the price of dated Brent — the benchmark price of physical cargoes of North Sea crude oil — at a record discount of around $31 a barrel. That’s about three times the discount of $11 a barrel on February 24 — the day Russia invaded Ukraine — according to S&P.
Meanwhile, dated Brent has been rising, hitting $126.50 a barrel on Wednesday, up about 20% from $106.52 a barrel on February 24, according to S&P. Global oil prices have surged to 14-year highs this month, driven by concern about a shortfall in supply as a result of the war in Ukraine war.
Major consumers outside of Europe, such as China and India, are buying up cargoes of Urals, according to S&P, citing trade sources. Neither country has overtly condemned Russia for the war in Ukraine.
Given the pressure on the rest of the world to cut Russia off, Chinese buyers are negotiating deals privately instead of holding public tenders, Bloomberg reported. Earlier this month, Shell apologized after it purchased Russian oil after the war started.
Chinese state processors and independent refiners are among those in discussions to purchase buy Russian oil, Bloomberg reported, citing traders.
Russia was already China’s second-largest crude oil supplier in 2021, according to S&P, citing data from China’s General Administration of Customs. But China is unlikely to take in much more Russian crude, given that it has very little spare capacity along key pipelines and shipping routes, according to a report on Tuesday from the Federal Reserve Bank of Dallas.
Meanwhile, India has increased its purchases of Russian oil this year. According to Bloomberg, India has bought at least 13 million barrels of Urals since late February, equating to around 430,000 barrels per day, virtually double what it had previously imported from Russia.
Russian oil accounts for a fraction of India’s 5 million barrels per day of oil demand, the country’s Economic Times reported, citing Petroleum Minister Hardeep Singh Puri.
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