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India’s Refining Margins Slump as It Struggles to Secure Russian Oil

Refining margins for India’s biggest state-owned refiners have dropped in recent months amid more difficult access to Russian crude and soaring freight rates due to the Red Sea disruption to crude shipments, analysts and traders tell Bloomberg.

For most of 2023, Indian refiners enjoyed high refining margins and profits as they imported cheap Russian crude at $20 a barrel and more below international benchmarks.

Margins started eroding last quarter, although they are still higher than before the Russian invasion of Ukraine, which upended global crude trade flows. The decline in refining margins is due to higher costs for Indian refiners because of higher competition for Russian supply in Asia, increased freight costs, and tougher U.S. sanctions enforcement, which has limited India’s access to very low-priced crudes from Russia.

India could lose its refining advantage if it loses its edge on procuring cheaper crude from Russia, Mukesh Sahdev, head of oil trading and downstream research at Rystad Energy, told Bloomberg.

Stricter sanctions enforcement, narrowing discounts of Russian grades, and spiking freight rates due to the threats to shipping in the Red Sea have weighed on India’s crude purchases and imports of Russia’s oil in recent weeks.

The tougher enforcement of the G7 sanctions and related payment issues have been holding up Indian purchases of some cargoes of Russian crude oil, with tankers previously headed to India turning back eastwards, tanker-tracking data monitored by Bloomberg showed early this year.
Supply of Russia’s Sokol grade to India seems to be particularly hit by the tougher sanction enforcement.

In January, India’s crude imports from Russia slipped for a second consecutive month and were at their lowest level in a year, according to tanker-tracking data reported by Reuters.

Russia continues to be India’s top crude supplier, but deliveries to India fell by 4.2% from December to 1.3 million barrels per day (bpd) in January, per data from LSEG cited by Reuters. Vortexa pegs India’s crude imports from Russia at 1.2 million bpd last month, down by 9% month-on-month.

By Tsvetana Paraskova for