That’s the estimate from energy consultancy Wood Mackenzie, which sees part of the Russian crude typically purchased in the West being replaced by buyers from developing importers such as India and China.
European self-sanctioning has resulted in up to 1.2 million bpd of Urals crude displaced. Japan and South Korea have also turned down Russia’s ESPO grade going to Asia from Russian Far East ports. This resulted in sharp declines in ESPO weekly export volumes in the week ending March 25. Export volumes, however, have recovered for the week ending April 1, WoodMac’s analysts note.
“Global crude oil trade will rebalance by ‘crude swapping’ between ‘self-sanctioning’ advanced economies and developing markets,” managing consultant Alex Sun said in a statement.
“We estimate advanced economies such as the EU, Japan and South Korea could ‘swap’ about 650,000 b/d of Russian crude oil – 400,000 b/d of Urals, 170,000 b/d of ESPO and 80,000 b/d of East Russian lights - with similar grades and volumes predominantly from the Middle East procured by China and India,” Sun added.
The reshuffling of the Russian barrels is very attractive for buyers such as China and India due to the hefty discounts of Urals now. But refiners in China and India face challenges in taking up too much Russian crude in the short term because of contractual obligations with Middle Eastern producers, the managing consultant added.
In addition, China hasn’t shown yet too much appetite for Russian crude because of several factors, WoodMac said. These include expensive freight for Russian cargoes due to the sanctions, challenges with payments and tanker insurance, the fact that a Urals voyage takes double the time compared to Middle Eastern grades going to China, and Chinese refiners’ long-term contracts with oil exporters from the Middle East.