Oil prices were little changed in the current week, with bearish sentiment still dominating markets after the United States agreed to a one-year truce in its trade war with China, despite reports that Indian refiners are abandoning Russian oil following fresh US sanctions. Brent crude for December delivery was trading at $65.07 a barrel at 2:22 p.m. ET on Friday, down slightly from $66.48 a barrel a week ago, while the corresponding WTI contract was changing hands at $60.92 a barrel, down from $61.95 a barrel.
Last week, the Trump administration announced new sanctions against Russian oil and gas giants Rosneft and Lukoil, just days after the United Kingdom unveiled similar sanctions. Trump previously threatened tough action against Moscow for not agreeing to a peace deal with Ukraine, but had avoided following through on his threats. And now there are reports that Indian refiners are eschewing Russian oil in favor of more expensive grades from the United States and the Middle East in a bid to avoid incurring Trump’s wrath.
For the past three years, India has been taking advantage of cheap Russian crude, which is often offered at discounts of $8 to $12 a barrel to Middle East benchmark prices. Russia has consistently been India’s largest supplier since mid-2022, with India buying ~1.75 million barrels per day from Russia at its peak, largely from Lukoil and Rosneft. India normally imports 86% of the oil it consumes. However, the latest round of US sanctions targeting the shipping, insurance and trading networks that Indian refiners leveraged to buy Russian oil on a large scale has reduced those discounts and increased the risks of the transactions, making Russian oil much less attractive.
Additionally, sanctions have made banks more cautious with settlement channels. Consequently, the share of Russian oil in India’s import basket has declined to 34% in the current year from 36% in the previous two years. In contrast, US crude imports to India rose to 575,000 barrels per day in October, the highest level in three years, indicating a deliberate turnaround. India will now have to deal with higher energy bills.”Crude oil prices rose sharply following new sanctions imposed on Russian oil majors, sparking fears of a surge in supply and renewed concerns about inflation. This could negatively impact India as high crude oil prices may widen the fiscal deficit and strain the import bill.”said Vinod Nair, head of research at Geojit Investments.
Commodities analysts at Standard Chartered have predicted that the path of the oil price will be determined by the number of Russian barrels removed from supply following sanctions. Rosneft and Lukoil exported 1.9 million barrels per day (mb/d) of crude oil by sea over the past year, most of it to India and China. China also imported ~800,000 barrels per day (kb/d) of crude oil from Rosneft via pipeline.