Flagship Russian oil sinks in China after India buyers pull back

The oil market is tracking the shifts in the flows, which have been shunned by western buyers following Russia’s invasion of Ukraine in 2022

• Urals crude prices for China hit record lows as Indian demand drops
• Urals shipments now about $10 below Brent, compared to $1 premium in August
• China's Urals imports reach record 400,000 barrels a day amid surplus supply

Did our AI summary help?

Prices of Russia’s flagship Urals crude for delivery to China have dropped to an unprecedented low as demand for the grade from Indian processors eases off, lessening competition for the cargoes.

Shipments of the grade dropped to about $10 a barrel below Brent futures this week, according to people involved in the trade, who asked not to be identified due to the sensitivity of the matter. That compares with premiums of about $1 a barrel over Dated Brent that were offered back in August.

The oil market is tracking the shifts in the flows, which have been shunned by western buyers following Russia’s invasion of Ukraine in 2022. Initially, Indian refiners ramped up purchases of the displaced cargoes to take advantage of the cheap oil. But their appetite waned following US sanctions on Russian producers including Lukoil PJSC and pressure from the Trump administration.

In a sign of the overall trend, Russia’s oil exports recently fell to the lowest since August, as Moscow faced mounting difficulties in delivering barrels to key buyer India. Imports into the south Asian country — the world’s third-largest oil importer — contracted to a more-than-three-year low in December.

That’s put pressure on Urals pricing, while opening up an opportunity for refiners in China, even though the grade has not traditionally been a variety sold into the country in large volumes. Urals is exported from the nation’s western ports, meaning it’s distant from processors in Asia’s largest economy, who have typically taken more Russian ESPO, which loads from the Far East.

With India curtailing purchases, the amount of Urals being held on tankers has surged to more than 13 million barrels, the highest level in at least a decade, according to ship-tracking firm Kpler Ltd. Nearly half of that volume is in the Arabian Sea, but close to a fifth is in the Singapore Strait and the Yellow Sea, placing it within relatively easy reach of Chinese buyers.

China’s Urals imports have climbed to about 400,000 barrels a day so far this year — the highest on record — according to Kpler data, with figures from Vortexa Ltd. showing a similar trend.