Premiums for Russia's Urals crude delivered to Indian ports have eased as domestic refiners reduce purchases in the face of subdued refining margins, market reports on Tuesday indicated.
For June delivery, Urals is now trading at a premium of $2 to $4 a barrel to Brent, a decline from the $6 to $7 a barrel premium seen for May delivery cargoes. The narrowing reflects less active buying from refiners who are reacting to tighter processing economics.
Urals has been priced above Brent in Indian ports since early March, after the U.S.-Israeli war on Iran disrupted oil flows through the Strait of Hormuz. A near halt to tanker traffic through that chokepoint has reduced the availability of Gulf crude, prompting refiners across Asia to hunt for alternative grades, including Russian barrels.
India, one of the world’s largest importers of crude oil, is experiencing economic strain from elevated crude and fuel costs. The government has maintained domestic petrol prices at current levels, even as fuel consumption showed weakness - India’s fuel demand was down 4.6% in April compared with the same month a year earlier.
In response to rising global energy prices and their impact on foreign exchange reserves, Prime Minister Narendra Modi on Sunday called for a range of measures, including steps aimed at conserving fuel.
Across the region, spot premiums for Russia’s Far East ESPO Blend delivered to China in June have also softened. Independent refiners in China have pulled back purchases as weakening refining margins reduced their appetite for additional crude volumes.
The recent shifts in premiums and buying patterns underscore how refining margins and disruptions to supply routes can quickly influence crude flows and trade economics in Asia. Market participants appear to be recalibrating purchases in response to the combined pressures of higher international energy prices and deteriorating local refining economics.
Key points
- Urals premium to Brent for June in India fell to $2-$4 a barrel from $6-$7 for May deliveries.
- Reduced purchases by refiners are linked to weak refining margins, affecting demand for Russian grades in Asia.
- India faces economic pressure from higher crude and fuel prices while keeping petrol prices unchanged, with fuel demand down 4.6% in April year-on-year.
Risks and uncertainties
- Persistently weak refining margins could further curb refiners' crude purchases, influencing import volumes and refinery throughput - impacting the refining sector.
- Continued disruption to tanker traffic through the Strait of Hormuz may keep Gulf supply constrained, sustaining demand volatility for alternative grades - affecting shipping and trade logistics.
- Rising global energy prices may strain India’s external balances and domestic economic conditions if pressures on foreign exchange reserves persist - relevant to macroeconomic stability and energy policy.