Asia buys Russian oil at a discount, offsetting cuts from Europe.

A surge in Asian demand for discounted Russian oil offsets the sharp drop in the number of barrels sold to Europe, mitigating the effects of Western efforts to punish Moscow for its invasion of Ukraine and keep Kremlin revenue.

Most of the extra oil went to two countries: China and India. China’s imports of Russian oil rose 28% in May from the previous month, hitting a record high and helping Russia overtake Saudi Arabia as China’s top supplier. And most of the increase went to India, which went from almost no Russian oil to more than 760,000 barrels per day, according to shipping data analyzed by market research firm Kpler. .

Although South Korea and Japan have cut Russian oil, these volumes are only a fraction of what is bought by China and India.

“Asia saved Russian crude production,” said Kpler analyst Viktor Katona. “Russia, instead of falling further, is almost close to its pre-pandemic levels.”

Russian oil is sold with a big discount because of the risks associated with the sanctions imposed to punish Russia for its invasion of Ukraine. Despite this, soaring energy prices have led to an increase in Russia’s oil revenues, which brought in $1.7 billion more last month than in April, according to the International Energy Agency. .

While it remains to be seen how much Asia will continue to buy oil as Europe weans off Russian energy, the shift has allowed Moscow to maintain production levels and defy analysts’ expectations. which its production would plunge. And it offered another indication of the support Russia enjoys from China, whose leader, Xi Jinping, offered to deepen cooperation with Moscow despite its invasion of Ukraine.

Sales of Russian crude fell 554,000 barrels per day to Europe from March to May, while Asian refiners increased consumption by 503,000 barrels per day, nearly a one-to-one replacement. Of these, 165,000 barrels go to China from eastern Russian ports instead of the Baltic and Black Sea ports that traditionally supply Europe. Russian sales to India hit a record 841,000 barrels a day in May, eight times the annual average of last year.

Commodity experts at JP Morgan estimate that China can buy an additional million barrels of Russian crude a day as China recovers from Covid and tries to increase its strategic stocks of cheap crude. Russian Ural crude is selling at a $30 discount to Brent.

There was hope that the threats of sanctions against those insuring Russian shipments would persist. But while transport ship financing has raised costs, the discounts are so deep that China, India and other Asian buyers are buying.

Once they refine oil into diesel, no one can distinguish whether the products that are sent to Europe and elsewhere are from Russian crude. JP Morgan estimates that Russia can find shipping capacity to transport around three million barrels of oil a day to Asia, and state-run insurers in India and China will take care of the insurance.

“These molecules, many of which are Russian,” said Jeff Brown, president of FGE, an energy consulting firm, of the refined oil that is exported back to the West. “That’s the central tension – they want to punish Russia, but they don’t want oil prices to rise.”

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