Asia’s crude oil markets are adjusting rapidly to new sanctions against top supplier Russia, sucking up cargoes while they can and moving to alternatives for deliveries in coming months.

The top-oil importing continent, Asia is on track to receive about 3.23 million barrels per day (bpd) of Russian crude in February, according to data compiled by LSEG Oil Research.

This is down about 7.4% from January’s 3.49 million bpd, but the breakdown of destinations shows India buying more and China less.

There are effectively only two buyers for Russia’s seaborne crude in Asia, India and China, although Myanmar also takes some small volumes.

India’s imports of Russian oil are expected by LSEG to reach a three-month high of at least 1.71 million bpd, a figure that may rise by the end of February as more cargoes are assessed.

The South Asian nation became the top buyer of Russian crude after Western sanctions cut off customers in Europe.

India had been allowed to buy Russian oil at discounted rates as the United States and other Western countries tried to keep Russian crude in the global market, but cut the revenues flowing to Moscow as part of sanctions after its February 2022 invasion of Ukraine.

The latest round of U.S. sanctions last month by former President Joe Biden put restrictions on Russia’s so-called shadow tanker fleet, with the aim of preventing the vessels from delivering oil.

This resulted in Indian refiners scrambling to buy as much Russian crude as they could before the new measures kicked in, leading to the increase in February arrivals before a likely decline in March.

Chinese refiners moved faster in cutting back on Russian crude, with February seaborne imports set to come in around 500,000 bpd, down from the average of about 1.05 million bpd over the prior three months.

China, the world’s biggest crude importer, is expected to see total arrivals in February of about 10.35 million bpd, according to LSEG, roughly steady with January’s 10.10 million bpd, but down from 11.16 million bpd in February 2024.

This means China is replacing Russian crude with cargoes from other suppliers, and so far it seems to have largely turned to Angola and Brazil.

SUPPLIER SWITCHING

Asia’s imports of Angolan oil are expected to leap to 1.13 million bpd in February from 670,000 bpd in January, while those from Brazil are set to rise to 1.05 million bpd from 930,000 bpd.

Looking beyond February the picture becomes even more complex, given China’s decision to levy a tariff of 10% on imports of crude from the United States, part of a response to new President Donald Trump’s imposition of a 10% tariff on all imports from China.

The tariff is high enough to make U.S. crude uncompetitive in China, but it will take several months for this to work its way through to physical imports, given the lag between when cargoes are arranged and when they are delivered.

China’s imports of U.S. crude are actually expected to rise strongly in March and April, with March arrivals currently assessed by commodity analysts Kpler at 339,000 bpd and those for April at 461,000.
This is because these cargoes are already either on the water or have been arranged.

From May onwards it is likely that China’s imports from the United States will slide, but India may well take up the slack as part of efforts to replace Russian crude.

Source: Reuters