India has suspended the purchase of Russian premium grade ESPO oil

According to Kommersant’s information, the largest buyer of seaborne shipments of Russian oil – India – has not been purchasing Russian premium ESPO grade oil, which is shipped from the port of Kozmino, for two months now. Previously, the country sharply reduced shipments of another premium grade of oil – Sokol – from Sakhalin fields. This was due to disagreements in payments for oil, as well as concerns of Indian buyers after the tightening of the price ceiling for Russian oil.

India has not been buying ESPO grade oil for two months now, which is exported by sea through the Far Eastern port of Kozmino, according to Kpler data (available to Kommersant). Although China is the main consumer of ESPO oil (800 thousand barrels per day, b/d, in 2023), India has also been a major buyer of this grade. Over the past year, ESPO supplies to India averaged about 95 thousand bpd, during the second half of 2022 – 60 thousand bpd.

ESPO is a grade of oil with low sulfur content (less than 0.6%), supplied to the east from the fields of Eastern Siberia. ESPO pricing has traditionally been based on the Dubai grade. Since the main market for the variety was Asia, and also because of the quality, even after the outbreak of hostilities in Ukraine, ESPO continued to trade at a slight discount to the benchmark. ESPO quotes, in contrast to the main Russian export grade Urals, have always exceeded the price ceiling for Russian oil set by the G7 countries at $60 per barrel.

India began to actively purchase ESPO shipments after some buyers refused to purchase in 2022 due to the introduction of sanctions and joined the restrictions. Thus, from March 2022, supplies of ESPO to the United States were stopped, which imposed an embargo on the import of Russian oil and petroleum products. Since May 2022, South Korea and Japan have not bought this oil.

In recent months the situation has changed. India abruptly stopped purchasing premium grades of Russian oil – ESPO and Sokol (produced at the Sakhalin-1 project, operated by Rosneft). The reduction in interest in Russian premium oil grades coincided with the fact that in November 2023, the United States tightened the terms of the price ceiling for Russian oil (set at $60 per barrel).

Let us remind you that Sakhalin-1 has not yet been able to find a compromise with the Indian Indian Oil on payments for Sokol supplies, as a result, about ten tankers with 10 million barrels of oil from the Sakhalin-1 project have been idle for several months awaiting decisions on loading. As a result, some of the tanker shipments were acquired by other Indian players, and some went to China.

ESPO is of higher quality than Urals, with a minimum amount of sulfur and a higher yield of middle distillates, says Victor Katona from Kpler. Therefore, in the current market conditions, ESPO, especially at a discount, looks like a very attractive option for Asian oil refiners. In his opinion, all Russian grades of oil, which are “obviously trading above the price cap,” cause certain concerns among Indian buyers. For Chinese oil refiners, including state-owned companies, these problems practically do not exist – payments are made by telegraphic transfer, and trade in yuan generally takes place without the knowledge of the authorizing parties, he notes. In addition, the logistics distance from Kozmino to China is minimal – five to six days.

These are difficult times for Chinese buyers – Iranian oil has risen in price greatly, and the discount offered by Iranian NIOC (minus $4-5 per barrel to Brent), from their point of view, does not correspond to the risks associated with trading Iranian oil, continues Mr. Katona. At the same time, ESPO is only subject to quasi-sanctions – if oil is not traded in dollars, and if freight and insurance are not Western (as in the case of supplies to China), then there is no need to talk about the use of a price cap, argues Mr. Katona.

Dmitry Kozlov