Column: Rising flow of Russian oil products to China, India and the Middle East

A Russian state flag flies on the top of a diesel plant in the Irkutsk Oil Company-owned Yarakta Oil Field in Irkutsk Region
A Russian state flag flies on the top of a diesel plant in the Yarakta Oil Field, owned by Irkutsk Oil Company (INK), in Irkutsk Region, Russia March 10, 2019. Picture taken March 10, 2019. REUTERS/Vasily Fedosenko/File Photo

LAUNCESTON, Australia, Feb 16 (Reuters) - Similar to what has already happened with Russian crude oil, there are signs that the country's refined fuels are finding new buyers outside Europe, with Asia and the Middle East the leading new customers.

The European Union imposed a ban on imports of Russian oil products from Feb. 5, to go along with its earlier sanctions on crude oil as part of efforts to punish Moscow for its invasion of Ukraine on Feb. 24 last year.

Russia has largely managed to work around the European ban on buying its crude oil, diverting flows mainly to India and China, albeit at prices well below the prevailing global crude benchmarks such as Brent, West Texas Intermediate and Oman/Dubai.

But it's likely to be a different story with re-routing product exports, given that China and India are significant exporters of fuels, and relatively minor importers.

However, there are opportunities for Russian products to flow into both China, the world's biggest crude importer, and India, the second-biggest oil importer in Asia.

Some Chinese refiners have the ability to process fuel oil into higher value products such as diesel and gasoline, and if Russian cargoes can be offered at a cheap enough price, there is scope to increase this trade.

China's imports of Russian fuel oil are expected to hit a record high in February, with commodity analysts Kpler tracking arrivals of 5.62 million barrels, up from 3.89 million in December, which was the previous all-time high.

India has also been lifting its imports of Russian fuel oil since the attack on Ukraine, with Kpler estimating 4.484 million barrels arrived in January, which was the second-highest on record behind the 4.88 million in October, and more than three times the 2021 average of 1.45 million barrels a month.

India has also turned to Russian naphtha, with February arrivals of the chemical feedstock expected to reach 1.49 million barrels, a record high.

India only rarely bought Russian naphtha prior to the war in Ukraine, but has been buying more since September last year.

Outside of the big heavyweights of Asia, Russia has some scope to boost oil product shipments, with product importing countries such as Indonesia, Pakistan and Bangladesh possible targets, even though so far there are no signs of any flows to these buyers.

Imports of Russian fuel oil by China, India and Saudi/UAE


The other region that offers scope for Russian products is the Middle East, where the United Arab Emirates (UAE) and Saudi Arabia have been increasing imports.

The UAE is expected to import 3.0 million barrels of Russian fuel oil in February and 4.34 million in March, according to Kpler, up from 750,000 barrels in February last year.

Saudi Arabia's imports of Russian fuel oil are expected to reach 1.98 million barrels in February, up from 370,000 barrels in the same month last year.

Both Saudi Arabia and the UAE can utilise Russian fuel oil to displace crude in direct-burning for power generation.

This has the advantage of freeing up higher value domestic crude oil for export or for processing in refineries for export as fuels.

The UAE is expected to export 5.69 million barrels of diesel in February, a five-month high, with Europe the destination for 4.36 million barrels, with Asia taking 650,000 barrels and Africa 690,000 barrels.

In February 2022 the UAE exported 5.47 million barrels of diesel, but only 1.91 million barrels went to Europe, with Asian countries taking 900,000 barrels and African nations 1.82 million barrels.

It's likely that these sort of shifts in the flow of products around the globe will continue as traders, refiners and consumers adjust to the European ban on imports of Russian products.

Similar to crude it's also likely that volumes will hold up, although Russia may battle to offload all of its higher-value refined fuels, especially diesel.

The questions as to how big a financial blow will be dealt to Moscow from lower product export revenue remains to be answered, but it would appear that the biggest beneficiaries of the ban on products will be those refiners that can snap up cheap Russian fuel oil and naphtha and process them in higher value products.

The opinions expressed here are those of the author, a columnist for Reuters.

By Clyde Russell; Editing by Christopher Cushing

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Clyde Russell is Asia Commodities and Energy Columnist at Reuters. He has been a journalist and editor for 33 years covering everything from wars in Africa to the resources boom and its current struggles. Born in Glasgow, he has lived in Johannesburg, Sydney, Singapore and now splits his time between Tasmania and Asia. He writes about trends in commodity and energy markets, with a particular focus on China. Before becoming a financial journalist in 1996, Clyde covered civil wars in Angola, Mozambique and other African hotspots for Agence-France Presse.