Singapore/New Delhi, Feb 14 (Reuters) - Increased U.S. sanctions on Moscow have disrupted a thriving trade in discounted Russian oil to China and India, leading to a renewed interest in Middle Eastern and African crudes. This disruption has stirred up shipping markets and pushed up oil prices.
The sanctions enforced on January 10 by Washington aimed to restrict Moscow's oil revenue, building on prior western sanctions imposed after Russia's invasion of Ukraine three years ago. Consequently, the new regulations have prompted a search for alternative oil sources as millions of barrels are left untraded.
This development has significantly reshaped market dynamics. For a brief period, the high-sulfur benchmark Dubai oil became more costly than the easier-to-process low-sulfur Brent, creating opportunities for producers in Brazil and Kazakhstan to gain market share in China and India.
Furthermore, premiums for Brazilian crude have surged, reaching about $5 per barrel against dated Brent for deliveries to China, up from approximately $2 in the previous month. In March, China is scheduled to receive its first cargo of Kazakhstan's CPC Blend since June 2024, according to Kpler data.
After the sanctions, TotalEnergies' trading arm TOTSA received numerous inquiries, prompting it to conduct tenders instead of private negotiations for its Middle Eastern crude cargoes. These cargoes eventually found buyers in China's CNOOC and Rongsheng Petrochemical.
Reflecting the increased demand for Middle Eastern crudes, premiums for benchmarks Oman, Dubai, and Murban more than doubled in January compared to December. Saudi Aramco also raised prices for Asia-bound crude to the highest levels since December 2023, impacting refinery costs.
Amidst the changing landscape, Indian refiners are facing particular challenges due to rising oil costs and limited supply options. India's refiners have shifted from traditional Middle Eastern sources to Russian oil, following a 10-year supply agreement worth roughly $13 billion annually with Russian state giant Rosneft. However, the recent sanctions have constrained Russian oil purchases for India, contributing to a decrease in discounts for Russian Urals crude.
With many navigating through the complex implications of the sanctions, the market is expected to be more volatile, with uncertainties looming over Russian oil exports and global oil prices.