India’s short-term oil supplies are unlikely to be affected despite major sanctions on Russian oil, thanks to a two-month shutdown period that gives refiners enough time to draw up a roadmap for future procurement, senior government officials said.
While India is still studying the impact of the sanctions, officials added that abundant oil availability around the world as well as OPEC’s spare capacity should keep the supply situation comfortable and prices under control.
“The impact of sanctions can be felt after two months of the end of the wind down period. There is no shortage of supply. OPEC has sufficient spare capacity. And non-OPEC suppliers like the US, Canada, Brazil and Guyana can easily open the taps,” said a senior oil ministry official.
The United States and Britain announced a new package of sanctions against Russia’s energy sector on January 10, including curbs on Russia’s two main oil producers, reinforcing recent efforts to hit Moscow’s oil revenues supported by a shadowy tanker fleet. The announcement set March 12 as the deadline to stop financial transactions
The sanctions tighten restrictions on Gazprom Neft and Surgutneftegas and add more than 180 vessels, dozens of oil traders, oilfield service providers, tanker owners and managers, insurance companies and energy officials to the blacklist, the US Treasury Department said in a statement.
Pay attention to prices
“The price spike was a knee-jerk reaction. We expect the market to weaken and we do not expect oil prices to stay above $80/b for long,” the oil ministry official added. “Indian refining companies are heading towards negotiations to reach long-term agreements with Middle Eastern suppliers. Depending on the market, they may increase short-term volume.”
Crude oil futures ended the Jan. 13 session at their highest level since August as global supply balances tightened following a U.S. crackdown on “shadow fleet” tankers carrying sanctioned Russian and Iranian oil exports.
February NYMEX WTI closed $2.25 higher at $78.82/b and March ICE Brent rose $1.25 to end the session at $81.01/b.
Platts, part of S&P Global Commodity Insights, valued Dated Brent at $82.975/b on Jan. 13. rose more than 3% on Jan. 10 and the highest since Aug. 15 as markets reacted to tighter sanctions.
In 2024, Russian crude oil imports to India will average 1.7 million b/d, making OPEC+ producers the largest suppliers, according to data from S&P Global Commodities at Sea(opens in a new tab).
About 95% of newly sanctioned vessels contain crude oil and refined products originating from Russia, while several other sanctioned vessels contain oil originating from Iraq and Iran. The total volume transported will be 1.8 million b/d of crude oil and refined products in 2024. Of this amount, 1.5 million b/d of Russian-origin crude oil was shipped on newly sanctioned vessels to China and India, with approx. 900,000 b/d shipped to China and India. to China and about 450,000 b/d to India, according to CAS data.
“The market is waiting for Russia to respond to the sanctions. The market is still digesting what these latest sanctions mean. “I don’t expect there will be a shortage of oil in the market,” the official said.
Another oil ministry official said that India’s refineries had enough supplies for the next two months. “There will be challenges after these two months. We hope everything will become clear to the market in the next two months.”
Important global implications
Bernstein said in a Jan. 13 research note that the latest OFAC sanctions would add to the strength of previous sanctions that had been largely ineffective against Russian oil flows. “In the future, based on these new sanctions, it will become increasingly difficult to supply Russian crude oil to Asia, which will increase the need for Middle Eastern crude oil to Asia.”
He added that the market will be watching three key developments.
“First, Russian companies have become adept at finding ways to circumvent US controls, even though these are more stringent. Second, OPEC can reduce its production cuts more aggressively given its large reserve capacity. And third, the new Trump administration could choose to confront Russia in a completely different way, particularly in ending the Russian-Ukrainian war,” Bernstein said.
He added that the US was reluctant to be more aggressive on Russian oil sanctions given the potential impact on gasoline prices and the global economy.
“The decision to impose these sanctions at the end of the current US administration is certainly interesting. But the key question is what happens next. “If President Trump seeks to end the Russia-Ukraine war, this would likely result in the lifting of Russian sanctions as part of any agreement that could have an adverse impact on oil,” Bernstein added.
Source: Platts
