China and India buy more Russian oil, blunting Western sanctions
Both countries take advantage of discounts as buyers disappear
TOKYO -- China and India have increased Russian oil purchases as prices decline due to Western import bans, the latest data shows, creating a loophole that allows Moscow to secure export revenue.
China imported 800,000 barrels of Russian petroleum daily by sea last month, according to data from Refinitiv, a figure that does not include oil delivered via pipelines. The volume has soared by more than 40% from January.
The number indicates that China is deliberately going after cheap Russian crude. India's marine imports of Russia's oil also spiked from zero in January to nearly 700,000 barrels a day in May.
China and India have expanded imports because "Western sanctions have reduced the number of buyers, meaning Russian crude oil can be purchased cheaply," said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., the state-backed energy explorer known as JOGMEC.
Following similar action by the U.S., the European Union agreed to ban imports of Russian oil last week, immediately halting imports on two-thirds of the petroleum. The bloc plans to end roughly 90% of purchases by year's end. More companies in Western economies are shying away from procuring Russian oil as well.
As a result, Russia's Urals crude, mostly bound for the European market, currently trades around $90 a barrel. In contrast, the Brent crude international benchmark sells about $35 higher.
Russia's ESPO crude -- mostly exported to Asia -- costs around $94 per barrel, roughly $20 below Dubai crude, which serves as Asia's benchmark. The prices differed by just a few dollars at the start of the year.
But the price of Urals crude has gained roughly 30% since a year earlier. The rise in international oil prices is one factor, and the growing imports by China and India buttress Russian oil prices amid the sanctions.
Russia's revenue from oil exports between January and April has climbed 50% on the year, the International Energy Agency said.
Russian coal benefits from a similar dynamic. Despite Western import bans, the price hovered around $148 a ton in late May, according to data from Argus Media, based on assessments at Baltic ports.
Though the value is well below the roughly $330 a ton for ICE Rotterdam coal futures in that period, Russian coal is still double the price from a year earlier. India, China and a few other importers have helped propped up the product.
For liquefied natural gas, Asian prices are in the mid-$20 range per 1 million British thermal units, but China-bound Russian LNG is "being traded at a significant discount," said Toshiyuki Makabe, managing director of commodities sales at Goldman Sachs.
Beijing's purchases of Russian LNG during May were in line with year-earlier volume, due largely to China's COVID lockdowns, but imports could rise again this summer on air conditioning demand. There are reports of Indian buyers purchasing Russian LNG on the spot market.
Meanwhile, pipeline deliveries of Russian gas to Europe have diminished only by a limited extent apart from halted supplies to Poland. These LNG sales do not appear subject to the types of discounts seen in Asia.
The U.S. and Europe are urging China and India to refrain from buying Russian oil and coal. But cheap Russian supplies present an enormous economic advantage given the soaring global energy prices.
India's Ministry of Petroleum and Natural Gas said last month that "energy purchases from Russia remain miniscule in comparison to India's total consumption." Pulling back from Russian imports "will lead to further volatility and instability, jacking up international prices," the ministry warned.