India's reliance on Russian oil may be ‘approaching a limit'

According to Kpler, India's monthly oil imports from Russia have reached their peak for the remainder of the year.

The monsoons in India began early June. As a result, the summer season is usually associated with a lower demand for petroleum products due to reduced mobility and construction.

A reduction in the flow of Russian oil to Asia has also been a factor. IEA reported that Russian oil exports have fallen to their lowest level in more than two years.

Analysts tell CNBC that India may be at a limit in terms of its ability to import Russian oil. They cite infrastructure and political limitations, as well the limits to Russian oil flow.

Janiv Shah, senior analyst with Rystad Energy, says that India will continue to import Russian crude, but it may have reached its limit and is unable to purchase any more barrels.

India's refiners are now more competitive than ever since the Kremlin invaded Ukraine in February of last year.

Russian oil is being snapped up at discounted prices

.

Since then, Russia has surpassed India as the country's largest source of crude oil.

About 40% of India's crude oil imports

.

Shah, in an email to CNBC, said that the volume of crude processed and consumed by India's refineries had now reached a "seasonal high" and was expected to continue declining.

The commodity intelligence company Kpler echoed his sentiments, pointing out that, in addition to the refineries currently being closed, oil demand is also set to trickle downward.

"For the very first time in this year, some refineries in India will undergo maintenance. This was not the case from January to May of 2023, when there were no turnarounds. Viktor Katona, Kpler's chief crude analyst said that everyone was on full throttle.

Katona said that the monsoon in India began early June. The summer is usually associated with a lower demand for petroleum products due to reduced mobility and construction.

India's fuel demand, which is the third-largest oil consumer in the world, typically drops during the monsoon period, a four-month period. India's total demand for oil in June fell 3.7% on a month-to-month basis to 19.31 millions tonnes, according

Data from India's Petroleum Planning and Analysis Cell

.

Kpler data shows that India imported Russian crude for the 10th consecutive monthly increase.

Katona called it "an unprecedented feat, particularly given the volumes involved -- 2.2 millions barrels per daily in June."

According to his forecasts, this is the maximum volume of Russian oil that India can import -- at least through the remainder of the year.

"I'd say 2.2m b/d is the peak for this year... We think India's crude imports from Russia will experience a slight correction downwards to two million barrels a day. He said that this would be a sustainable level for buying.

What is the limit to Russian oil flow?

It seems that the limit is both high and low.

Daniel Hynes is senior commodity strategist for ANZ. He said that the flow of money out of Russia has a "finite" limit.

"Any additional supplies coming out of Russia... that flow into Asia, I suspect they're done." He added, "It's the maximum amount."

According to the aforementioned report, Russian oil exports dropped 600,000 barrels a day to 7.3 millions barrels - the lowest level since March 2021.

Recent report by the International Energy Agency

.

Russia has also committed to

Trim its crude oil exports

Earlier in July,

Hynes said that India has spoken about its inability to pick up significant additional cargoes coming from Russia.

Katona, from Kpler, says that this does not mean that India's refiners won't try to import Russian oil at a record-breaking level next year.

He said that the demand for Russian oil will increase due to refinery turnarounds. "Most likely, it will happen again in the period between March and May," he added.

India and the Middle East: Politics matters

India must also maintain its relationships with other exporters, particularly key suppliers from the Middle East.

Rystad data shows that 55% of India’s recent seaborne medium-sour imports came from Russia while Middle East imports fell to an "historic low" of 40%.

Shah stated that "India's reliance on Russian crude may be reaching a limit, and it will still need to sign long-term agreements with Middle Eastern oil suppliers."

Refinitiv data showed that crude imports from the Middle East region fell 21.7% in June to 8,68 kilo tons compared with the beginning of the year.

The majority of medium sour crude oil supplies to India are covered by annual contracts with minimum purchase agreements.

Katona, a Kpler employee, said that the Indians are not buying as much because they do not want to upset the Middle East. He said that politics are important.

Indian buyers, however, are price sensitive and may still choose to buy Russian crude if the price is right.

Yaw Yan Chong, director of Refinitiv Oil Research in Asia said that Indian refiners could always take more Russian crude at the expense other grades.

Since February of last year, Russian exports have increased by more than ten times. From a monthly average of 350,000 metric tonnes before the invasion, to 4.57 million metric tons per month afterward, from March 2023, he stated.

Yaw believes that India will continue to pursue Russian imports "as long as Russian [crude] is under [sanction]" and "shunned" by their traditional European customers.