NEW DELHI: Following a European ban on Russian oil imports, Russia's flagship Urals crude has been sold at deeper discounts this month, and leading consumer India has purchased barrels at prices significantly below the $60 price cap established by the West, according to four market sources.
Moscow is looking for alternative markets, primarily in Asia, for about 1 million barrels per day of seaborne oil due to the European Union's ban on imports beginning on December 5.
In an effort to restrict Moscow's ability to fund its conflict in Ukraine, the Group of Seven leading economies also implemented a $60 price cap on Russian seaborne oil on December 5.
Even if it means reducing production, Russia has stated that it will not adhere to the cap.
Russian producers are now in fierce competition with one another and suppliers from Asia, Europe, and the Middle East as a result of Western actions, which means their best chance of finding customers is to lower prices, according to two traders.
Since Russia began its invasion of Ukraine in February, India has become the main outlet for seaborne cargoes of Urals crude.
For some deals this month, the price for Urals in Indian ports, including insurance and delivery by ship, has fallen to around minus $12-$15 per barrel versus a monthly average of dated Brent, down from a discount of $5-$8 per barrel in October and $10-$11 in November, the sources said.
The discounts mean oil is in some cases being sold at below overall production cost including local levies, industry sources said.
The pressure on producers has increased further in Russia's western ports, where a lack of vessels suited to Russian winter weather has driven up freight costs, which can be borne by the seller depending on the terms of the deal.
Freight rates have risen to between $11 and $19 per barrel, up from less than $3 per barrel in February, and are roughly double what they were in the middle of the year.
According to Reuters calculations, discounts for Urals oil at Russia's western ports for sale to India under certain deals have widened to $32-$35 per barrel when freight is not included.
Early in December, the price of the Dated Brent benchmark was hovering below $80 per barrel, while the estimated cost of Russian oil for producers—including extraction, tax, and transport costs to export ports—was estimated to be between $15 and $45 per barrel, according to deputy energy minister Pavel Sorokin.
According to traders, Russian oil suppliers are attempting to handle the transport of Urals oil to India themselves by using their own ships and shipping partners, which can lower transport costs.
However, a lot of oil producers still depend on trading companies, so any profits they make must be split.
India, the second-largest oil consumer in Asia, is better situated to purchase Urals than China due to a shorter transport route, and its refineries are well-suited to processing Russian oil.
Additionally, New Delhi accepts Russian entities' ships and insurance coverage, which are no longer accepted in Europe.
According to Refinitiv Eikon data, uranium supplies to India increased to at least 3.7 million metric tons in November and reached a record 53.2% of the overall grade via sea ports.
According to data gathered from trade sources, Russia replaced Iraq as India's top oil supplier in November.
"Urals are widely available on the market. There is an abundance. Many traders are offering Urals cargoes for both December and January delivery "a resource.
In November, Russia replaced Iraq as India's top oil supplier, according to data gathered from commercial sources.
"There are many Urals on the market. There is a surplus. The Urals are available for both December and January delivery, according to numerous traders. According to a source with an Indian refiner. Due to their lack of press authorization, none of the sources could be named.
Source: Reuters