India Surpasses China as Top Russian Crude Buyer Amid Global Refinery Shifts

Prices

• Oil prices were steady in early Asian trading but were poised to end the week lower as downward revisions to U.S. employment data raised demand concerns, and ceasefire talks in Gaza eased worries about supply disruptions.
• Brent crude futures were down a cent to $77.21 per barrel by 0033 GMT. U.S. West Texas Intermediate crude futures were up 4 cents to $73.05 per barrel. MCX crude oil prices opened at 6,142, with a fall of 0.26%.

Demand and Supply

• Emmanuel Addeh in Abuja reported that Nigeria’s Dangote mega-refinery is processing more of the country’s own oil while inflows from the U.S. appear to be waning, according to Bloomberg.
• The plant is set to import just over four-fifths of its feedstock from domestic sources in the third quarter, up from less than three-quarters in the prior quarter, according to tanker-tracking data and information from traders.
• Oil prices were pressured last month on reports that the plant planned on re-selling some of the U.S. barrels it previously purchased, underscoring the pivotal role Dangote already plays within Atlantic basin petroleum markets.
• The refinery’s efforts to reduce overseas crude purchases could leave more U.S. export barrels competing for buyers elsewhere. This shift could intensify in the coming months.
• Starting in October, the Nigerian government will implement a new system allowing Dangote to purchase crude in local currency, potentially involving as much as 445,000 barrels a day of the nation’s crude.
• It is uncertain how much supply will be traded under the system, but if fully utilized, the process could result in Dangote requiring hardly any overseas crude. The refinery, located near the nation’s commercial hub Lagos, has taken in more than 56 million barrels of crude since December as it completed test runs and gradually increased processing.
• Of that, 78% has been local supply. A senior Dangote official declined to comment on the refinery’s future crude-procurement plans. The refinery took six cargoes of crude directly from the state oil company Nigerian National Petroleum Company Limited (NNPC) for next month, according to a company spokesman.

News

• India has overtaken China as the largest buyer of crude oil from Russia. Last July, Russia sold 44% of its crude oil to India, which imported 2.07 million barrels per day.
• This figure is 4.2% higher than in June and 12% higher than last year’s July figures, according to data released by Indian Shipments. Last July, China bought 1.76 million barrels per day from Russia, while India bought 2.07 million barrels, making India the top buyer of Russian crude.
• Russian companies sell crude oil to Indian companies at discounted prices due to economic sanctions imposed by Western countries. As a result, Indian companies are increasingly purchasing Russian crude oil and refining it into petrol and diesel.
• According to oil companies, the demand for Russian crude oil in India is rising, while Chinese companies have reduced their purchases, finding it less profitable to buy and refine Russian oil.
• In February 2022, a conflict broke out between Russia and Ukraine. Following this, Western countries imposed severe economic sanctions on Russia and Russian companies, advising various countries to avoid purchasing goods from them.
• However, trade between Russia and India has increased since the Ukraine war. India imports oil and fertilizers mainly from Russia, with the government expanding trade with Russia to curb inflation.
• Russian companies have taken advantage of this by selling oil and fertilizers to Indian companies at discounted rates. After Russia, India buys the most crude oil from Iraq, followed by Saudi Arabia in third place.

Expert's Opinion

• Crude prices are supported by fears of a retaliatory attack by Iran against Israel, which could escalate the conflict in the Middle East and disrupt the region's crude oil supplies. Iran has threatened to retaliate against Israel for last week's assassination of a Hamas leader in Tehran. Israel's military continues to conduct operations in Gaza, and there is a risk that the war could spread to Hezbollah in Lebanon or even lead to a direct conflict with Iran.
• Meanwhile, ongoing attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.