India has stepped up its buying of Russian crude oil in January from already record levels of the previous month. And, astonishingly, the United States has emerged as the biggest buyer for the refined products, despite Washington’s entreaties to the rest of the world not to buy Russian fuel.
India’s purchases of Russian crude oil have shot up to 1.7 million barrels per day (bpd) in January which is a steep rise from 1.2 million bpd in December 2022– which was even then record-level buying.
“People were asking where all the Russian Urals crude could go if Europe wasn’t buying. When India took 1.2 million bpd in December, they said surely India cannot do more. And in January, it is 1.7 million bpd,” says Viktor Katona, lead crude analyst at Kpler, a data and analytics firm.
The US has traditionally been a big buyer of a Russian refined product called virgin gas oil (VGO). Now, since it can’t buy VGO directly from Russia, it’s purchasing it from Indian refineries run by Reliance Energy and Nayara Energy – and the VGO from these refineries is made from Russian crude oil.
Reliance, Nayara biggest exporters
The US is buying 200,000 bpd of finished products, mainly VGO from Reliance. “The biggest destination country of Indian products is surprisingly the United States. And the biggest exporters into the United States are Reliance and Nayara,” says Katona.
Reliance and Nayara are the two biggest buyers of Russian crude but the big public sector giants like IndianOil Corporation (IOC), Bharat Petroleum (BP) and Hindustan Petroleum (HP) have also got into the game in a big way. “Everyone’s buying. It has become a national sport,” says Katona.
This month, Reliance is buying about 600,000 bpd from Russia which is almost half its total refinery capacity. The Nayara refinery is almost entirely processing Russian crude currently.
$10 discount for India
Around 68 tankers have either docked at Indian ports or are on their way here. India is thought to be getting roughly a $10 discount on the market. Says Katona: “If India’s getting a $10 discount, the refiners could be saving $10 million per tanker.” The ships are landing at all the major ports including Sikka (for Jamnagar), Paradeep for IOC, Kochi for BP. A few tankers have also docked or are heading to Mumbai, Mangalore, Mundra, Chennai and Visakhapatnam.
From the beginning of Ukraine war nearly a year ago, India, while calling for dialogue, has ignored Western appeals not to purchase Russian oil, saying it needs Russian crude to ensure energy security for its 1.4 billion population. At the same time,the US has been struggling to rebuild its strategic reserves after they were drained by the Russian sanctions ban and the efforts to stop the OPEC price hike from increasing prices at US gasoline pumps.
“The charts show the US is the number one destination or product in December. Number 2 place is the UAE and third place is Singapore. The US is exporting an insane amount of VGO,” says Katona.
Breaking down VGO
"If you have a sophisticated refinery, you can break down VGO into more complex hydrocarbons. It's a semi-product which is ideal to produce transportation fuels. It’s remarkably good for transportation fuels, specifically for diesel,” notes Katona. “It can also be upgraded into gasoline.”
India has a total monthly crude oil demand of about 5.4 million bpd. So about 30 per cent of our crude oil is now coming from Russia. Another 15 per cent to 20 per cent is from domestic sources and another 50 per cent from other sources. We have cut back our buying from Saudi Arabia.
India’s now the world’s second biggest buyer of Russian oil after China – but we are the largest buyer of ship-based consignments. China gets a large amount by pipeline.
Because of sanctions Europe has almost entirely stopped buying Russian crude. Only Bulgaria has an exemption and is allowed to buy ship cargoes of Russian crude.