Moneycontrol Pro Panorama | Oil trade's become a game of musical chairs

Representative image

Dear Reader,

The energy market has gone through unthinkable structural changes since the Russia-Ukraine war. Disruptions in oil supply and sanctions on Russia by NATO nations have completely changed the dynamics of the oil and gas market.

India and China found a new partner in Russia after sanctions were imposed on the country. Discounts offered by Russia were lapped up by the two Asian giants. Of course, this sudden love for Russian oil did not go down well with the western world and it openly voiced its concerns.

Given the huge discounts, both India and China did not seem to pay heed to the objections in the initial months.

But recent shipping data show that shipments to India and China are down by almost 30 percent from the post-invasion peak. This data does not consider the ships on high seas and only accounts for those that have docked.

The average flow of Russian crude to Asia in the four weeks to July 15 was the lowest in 15 weeks. Shipments to China averaged 784,000 barrels a day in the last four weeks, while that to India was 679,000 barrels a day. These figures can increase if the destinations of about 350,000 barrels a day of crude on tankers on high seas are clear.

India and China now account for between 55-56 percent of Russia’s total sea-borne exports for the past six weeks, which is down from a high of 63 percent in the four weeks to April 15, according to a Ambuja Cements Q2 CY22: Near-term headwinds keep us on sidelines report.

The reasons for lower oil to India and China are not yet clear. But what Russia seems to have lost to these countries, it is making up with its exports to Saudi Arabia. The kingdom nation, one of the largest oil producers, has joined the growing list of countries importing Russian oil despite Western sanctions.

In the April to June quarter, Saudi imported 647,000 tonnes of Russian oil as compared to 320,000 tonnes in the previous year. Saudi Arabia is importing cheap Russian oil to feed its power plants while it exports its premium oil at higher prices in the world market. The kingdom imports Russian oil through Egypt, accounting for at least 110,000 barrels per day in June, while Egypt itself imported 70,000 barrels per day from Russia in the same month.

Though NATO nations want India and China to reduce their imports from Russia, the volume shipped from Russia to northern Europe has been increasing. Most of the oil is finding its way into storage tanks at Rotterdam, Netherlands, with small volumes going to Poland and Finland. Flows in the four weeks to July 15 touched 450,000 barrels a day, the highest in 11 weeks.

The energy market is changing fast and may be closer to an endgame, especially in natural gas, as stated in this article. An article by Vivek Kelkar points out that European countries are tapping African nations to meet their gas requirement, pushing India aside in its effort to search for oil.

The turmoil in the energy market has affected sentiments in equity markets, but as Manas Chakravarty points out in his article based on a fund managers' survey, sentiments have hit rock-bottom, lower than the Lehman crisis. That has led to the current rebound.

Investing insights from our research team

Hindustan Unilever: Growth despite multiple challenges

Ambuja Cements Q2 CY22: Near-term headwinds keep us on sidelines

Bhansali Engineering: Normalising margins, limited scope for volume growth cap earnings

What else are we reading?

HUL looks past inflation to focus on growth in a weak market

Indian economy moving stronger than most EM peers

SEBI’s insider trading rules for mutual funds are good but not enough

The Green Pivot: One earth, one life — Four sectors that companies need to focus on for ESG push

Generation moonshot: Why young investors are not ready to give up on risk (republished from the FT)

Technical Picks: Silver Mini, SAIL, Nifty, Nifty futures and SBI (These are published every trading day before markets open and can be read on the app)

Shishir Asthana Moneycontrol Pro