India buys cheap Russian oil; China could be next

There’s been a “significant uptick” in Russian oil deliveries bound for India since March after Russia’s invasion of Ukraine began — and New Delhi looks set to buy even more cheap oil from Moscow, industry observers say.   

China, already the largest single buyer of Russian oil, is also widely expected to buy more oil from Russia at deep discounts, they say. 

This could mean higher crude prices to come.

Major oil importing countries such as India and China have been grappling with higher crude prices, which have soared since last year. While oil prices have been volatile in recent weeks, swinging between gains and losses, they are still around 80% higher compared to a year ago.

“We believe that China, and to a lesser extent, India will step up to buy heavily discounted Russian crude,” said Matt Smith, lead oil analyst at Kpler.

This would mark a stark contrast from the rhetoric across major world powers and companies which are eschewing Russian oil. As a result of Russia’s unprovoked and unjustified war on Ukraine, the U.S. has hit the rogue country with sanctions on energy, while the U.K. plans to do so by the end of the year. The European Union is also considering whether to do the same. 

But sanctions would leave a gap in the market with Russia finding itself with excess crude it’s unable to sell, analysts said.

“Urals crude from Russia is being offered at record discounts, but uptake is limited so far, with Asian oil importers for the most part sticking to traditional suppliers in the Middle East, Latin America and Africa,” the International Energy Agency said on March 17. Urals crude is the main oil blend that Russia exports.

“As of mid-March, we see the potential for 3 million barrels a day of Russian oil supply to be shut in starting from April, but that could increase if restrictions or public condemnation escalate,” the IEA said.

A couple of commodity trading firms — such as Glencore and Vitol — were offering discounts of $30 and $25 per barrel respectively two weeks ago for the Urals blend, Ellen Wald, president of Transversal Consulting, told CNBC.