Saudi Crude Shipments to China Poised to Fall in September
Saudi Arabia will ship lower volumes of its crude to China next month, down from a two-year-high this month, after the Kingdom raised its September prices to Asia for a second consecutive month, Reuters reported on Monday, quoting trade sources at Chinese refiners. Saudi Arabia, the world’s biggest crude oil exporter, is expected to deliver about 43 million barrels of crude to China in September, according to a Reuters estimate of allocations for refiners. This is equal to 1.43 million bpd of Saudi shipments to the world’s largest crude oil importer next month, down from an estimated 1.65 million bpd which Saudi Aramco has allocated to Chinese refiners for August. Sinopec, the biggest refiner in Asia, and its Fujian Refinery joint venture with Saudi Aramco, are among refiners that plan to reduce their intake of Saudi crude in September, according to Reuters’ sources. The lower expected shipments would come as Saudi Aramco last week raised the official selling prices (OSPs) for its crude loading for Asia in September as it bets on robust demand. The flagship Saudi grade Arab Light will sell in Asia next month at a premium of $3.20 per barrel above the Oman/Dubai average, the Middle East benchmark, off which shipments to Asia are priced. The hike is $1.00 a barrel above the August price, as well as the second consecutive rise in the price of Arab Light loading for Asia. Saudi Arabia also lifted the official selling prices (OSPs) for the other grades, Arab Extra Light, Arab Medium, and Arab Heavy, by between $0.70 and $1.20 per barrel above benchmarks. The second consecutive increase in prices suggests that Saudi Arabia expect continued robust demand in its key exporting region, Asia, in the coming weeks. A potential reduction of Russian supply to India, due to the new tariffs, could also boost the demand for Saudi and other Middle Eastern crude shipments to Asia next month and going forward.
The crude oil market bets Trump’s India threats are hollow
The crude oil market’s rather sanguine reaction to the U.S. threats to India over its continued purchases of Russian oil is effectively a bet that very little will actually happen. President Donald Trump cited India’s imports of Russian crude when imposing an additional 25% tariff on imports from India on August 6, which is due to take effect on August 28. If the new tariff rate does come into place, it will take the rate for some Indian goods to as much as 50%, a level high enough to effectively end U.S. imports from India, which totalled nearly $87 billion in 2024. As with everything related to Trump, it pays to be cautious given his track record of backflips and pivots. It’s also not exactly clear what Trump is ultimately seeking, although it does seem that in the short term he wants to increase his leverage with Russian President Vladimir Putin ahead of their planned meeting in Alaska this week, and he’s using India to achieve this. Whether Trump follows through on his additional tariffs on India remains uncertain, although the chances of a peace deal in Ukraine seem remote, which means the best path for India to avoid the tariffs would be to acquiesce and stop buying Russian oil. But this is an outcome that simply isn’t being reflected in current crude oil prices. Global benchmark Brent futures have weakened since Trump’s announcement of higher tariffs on India, dropping as low as $65.81 a barrel in early Asian trade on Monday, the lowest level in two months. This is a price that entirely discounts any threat to global supplies, and assumes that India will either continue buying Russian crude at current volumes, or be able to easily source suitable replacements without tightening the global market. Are these reasonable assumptions? The track record of the crude oil market is somewhat remarkable in that it quickly adapts to new geopolitical realities and any price spikes tend to be shortlived. The Russian invasion of Ukraine in February 2022 sent crude prices hurtling toward $150 a barrel as European and other Western countries pulled back from buying Russian crude. But within four months the price was back below where it was before Moscow’s attack on its neighbour as the market simply re-routed the now discounted Russian oil to China and India. In other words, the flow of oil around the globe was shifted, but the volumes available for importers remained much the same. DIFFERENT THIS TIME? But what Trump is proposing now is somewhat different. It appears he wants to cut Russian barrels out of the market in order to put financial pressure on Moscow to cut a deal over Ukraine. There are effectively only two major buyers for Russian crude, India and China. China, the world’s biggest crude importer, has more leverage with Trump given U.S. and Western reliance on its refined critical and other minerals, and therefore is less able to be coerced into ending its imports of Russian oil. India is in a less strong position, especially private refiners like Reliance Industries, which will want to keep business relationships and access to Western economies. India imported about 1.8 million barrels per day of Russian crude in the first half of the year, or about 37% of its total, according to data compiled by commodity analysts Kpler. About 90% of its Russian imports came from Russia’s European ports and was mainly Urals grade. This is a medium sour crude and it would raise challenges for Indian refiners if they sought to replace all their Urals imports with similar grades from other suppliers. There are some Middle Eastern grades of similar quality, such as Saudi Arabia’s Arab Light and Iraq’s Basrah Light, but it would likely boost prices if India were to seek more of these crudes. If Chinese refiners were able to take the bulk of Russian crude given up by India, it may allow for a re-shuffling of flows, but that would not appear to be what Trump wants. Trump and his advisers may believe there is enough spare crude production capacity in the United States and elsewhere to handle the loss of up to 2 million bpd of Russian supplies. But testing that theory may well lead to higher prices, especially for certain types of medium crudes which would be in short supply. It’s simplistic to say that higher U.S. output can supply India’s refiners, as this would mean those refiners would have to be willing to accept a different mix of refined products, including producing less diesel, as U.S. light crudes tend to make more products such as gasoline. For now the crude oil market is assuming that the Trump/India/Russia situation will end as another TACO, the acronym for Trump Always Chickens Out. But the reality is likely to be slightly more messy, as some Indian refiners pull back from importing from Russia, some Chinese refiners may buy more and once again the oil market goes on a geopolitical merry-go-round.
Oil Prices Begin the Week Lower as Trump-Putin Meeting Looms
Crude oil prices extended their losing streak from last month, opening lower today on expectations that the Friday meeting between the presidents of Russia and the United States would yield a deal resulting in more oil supply. At the time of writing, Brent crude was trading at $66.24 per barrel, with West Texas Intermediate at $63.43 per barrel, after booking a drop of some 4% last week, after the deadline President Trump had set for Russia to end the war in the Ukraine passed and no stricter sanctions were effected as threatened, ING’s commodity analysts said. Russia’s demands include the Ukrainian government ceding eastern provinces, which it has indicated it would not agree to, and this casts doubts over the success of the Trump-Putin talks, Warren Patterson and Ewa Manthey noted. “If we do see some level of de-escalation, it would remove sanction risk from the oil market. This would likely drive prices lower, given the bearish fundamentals,” the analysts added. Bloomberg cited unnamed sources as saying the deal would indeed likely include recognizing the Donbass as Russian and the U.S. side was working to convince the Ukrainians and their European backers to accept it. This, however, was unlikely, the Bloomberg sources said, making any successful deal to end the hostilities highly uncertain. This, in turn, means the upside potential for oil prices remains rather intact. “If peace talks falter and the conflict drags on, the market could quickly pivot to a bullish stance, potentially triggering a sharp rally in oil prices,” Reuters quoted the founder of Indian research firm SS WealthStreet, Sugandha Sachdeva, as saying. Meanwhile, Trump’s tariffs on a host of trade partners continue to pressure oil prices due to their expected negative effect on overall economic activity in much of the world, according to analysts.
Indian refiners can do without Russian oil, but with trade-offs
Indian refiners, the world’s biggest user of Russian oil, can operate without supplies from Moscow from a technical standpoint, but the shift would involve major economic and strategic trade-offs, analysts said. Russian crude supports high distillate yields – the share of crude converted into fuels like petrol, diesel, and jet fuel through distillation. Replacing Russian crude, which accounts for up to 38 per cent of India’s refinery intake, with alternatives will shift yields, resulting in lower middle distillates (diesel and jet fuel) and higher residue outputs, according to global real-time data and analytics provider Kpler. US President Donald Trump last week announced an additional 25 per cent tariff on US imports from India — raising the overall duty to 50 per cent — as a penalty for the country’s continued imports of Russian oil. Since the steep tariffs are likely to hit the USD 27 billion of non-exempt exports that India does to the US, there has been chatter around stopping or curtailing oil imports from Russia. “Indian refiners can operate without Russian crude from a technical standpoint, but the shift would involve major economic and strategic trade-offs,” Kpler said in a report, ‘US Tariffs on Indian Imports: Implications for Energy Markets & Trade Flows’. India turned to purchasing Russian oil sold at a discount after Western countries imposed sanctions on Moscow and shunned its supplies over its invasion of Ukraine in February 2022. Consequently, from a mere 1.7 per cent share in total oil imports in 2019-20 (FY20), Russia’s share increased to 35.1 per cent in FY25, and it is now the biggest oil supplier to India.
Govt to review petrol pump licensing norms
The government is considering further easing the norms for setting up petrol pumps in the world’s fastest-growing fuel market, in light of the evolving energy security paradigm and commitment to decarbonisation, according to an official order. The government had in 2019 relaxed the norms for setting up petrol pumps, opening the door for non-oil companies to enter the fuel retailing business. At that time, companies with a net worth of Rs 2.50 billion were permitted to sell petrol and diesel, provided they committed to setting up infrastructure for at least one new-generation alternative fuel, such as CNG, LNG, biofuels, or EV charging, within three years of beginning their operations. For companies wanting to sell petrol and diesel to retail and bulk consumers, the networth criteria was set at Rs 5 billion. The Ministry of Petroleum and Natural Gas has now constituted an expert committee to review the 2019 guidelines for granting authorisation to market transportation fuels. The expert committee will “assess the effectiveness of the framework envisaged in Resolution dated November 8, 2019, in ensuring energy security and market efficiency; align the policy framework with national commitment towards decarbonisation, electrical mobility and promotion of alternative fuel; and address issues in implementation of existing guidelines,” the order said. The committee is headed by Sukhmal Jain, former director (marketing) of Bharat Petroleum Corporation Ltd (BPCL). Other members of the four-member committee are Petroleum Planning and Analysis Cell (PPAC) Director General P Manoj Kumar, FIPI member PS Ravi and Arun Kumar, Director (Marketing) in the ministry. An August 6 notice of the ministry sought stakeholder/general public comments/suggestions on the matter within 14 days. Prior to the 2019 change, to obtain a fuel retailing license in India, a company had to invest or commit to invest Rs 20 billion in either hydrocarbon exploration and production, refining, pipelines or liquefied natural gas (LNG) terminals.