Europe is increasingly turning out to be the brightest market for Indian oil products exporters that have capitalized on the shortages of diesel and other fuels due to geopolitical tensions and are shipping plentiful cargoes, a trend that is set to spill over to next year.
Analysts, refiners and trade sources told S&P Global Commodity Insights that Indian refiners have been reaping dual gains — buying copious amounts of crude oil from Russia at hefty discounts, as well as supplying products to the EU, which has extended the scope of its ban on Russian oil to diesel, in addition to crude.
“Refineries in India have ramped up exports to Europe and the Mediterranean since Europe and the UK banned Russian diesel in 2023. Indian exporters have weathered the Red Sea challenges earlier this year, diverting cargoes to Europe via the Cape of Good Hope on larger clip sizes,” said Benjamin Tang, head of liquid bulk at S&P Global Commodities at Sea.
India’s gasoil exports to Europe reached 215,000 b/d in October, coming off a high of 282,000 b/d in September. Latest numbers show that 104,000 b/d was loaded in November out of Indian ports for Europe, according to CAS data.
“Gasoil export volumes have moderated in November due to poorer arbitrage economics, but Europe will continue to be a key export market for Indian refiners due to their relatively close proximity and ability to meet the more stringent European fuel specifications,” Tang added.
Favorable arbitrage
The Platts-assessed front-month gasoil exchange of futures for swaps spread — a measure of the gap between Singapore 10 ppm sulfur gasoil swaps and the corresponding ICE low sulfur gasoil futures contract — averaged minus $21.41/mt in November, narrowing from minus $23.63/mt in October and minus $28.91/mt in September, Commodity Insights data showed.
Market participants closely watch the gasoil EFS spread as an indicator of East-West arbitrage economics. A smaller negative spread shows that the arbitrage is becoming less economically lucrative.
“Even some decent amount of jet fuel has been going to Europe this year from India,” said one Indian refining source.
CAS data showed that jet fuel shipments from India to Europe hit a year’s high of 126,000 b/d in May but have since come off.
The EU implemented in December 2022 a price cap and an embargo on Russian crude oil imports in a bid to curb Kremlin’s revenues for its war with Ukraine. However, this excluded refined petroleum products derived from Russian crude. The omission has enabled countries importing volumes of Russian crude to refine it and legally export the finished products.
As a result, Indian oil products exports to Europe have been ballooning — with gasoil accounting for the bulk of the volumes. India’s export of fuels like diesel to Europe jumped more than 50% in the first three quarters of 2024 on a year-on-year basis, according to analysts and CAS data.
“The surge in products’ exports is largely attributable to discounted Russian crude, made available due to the EU price cap and the bloc’s direct avoidance of Moscow’s oil exports. Ironically, while European nations have shunned purchasing crude oil directly from Russia, they continue to rely on petroleum products, without any clear guidance on the crude that’s used to make those products,” said Rajat Kapoor, managing director for oil and gas at Synergy Consulting.
“This economic paradox benefits Indian refiners, who find a lucrative and sustained market in Europe for their products. As long as this economic dichotomy persists, India’s refiners are well-positioned to capitalize on the situation.”
The value of those exports to Europe has skyrocketed to as high as $20.5 billion from $5.9 billion in 2019, marking a near 250% increase, analysts and trade sources added.
Reliance leads the show
Indian state refiners have mostly been catering to the domestic markets, while private refiners tapped the shortages in Europe to ship ample volumes to the region.
“Private refiners, such as Reliance Industries, have been the main beneficiaries of this opportunity. They have the large storage tanks and the ability to load sizable parcels for Europe. As long as the situation in Europe does not change and there is a strong arbitrage opportunity, Indian refiners will continue to capture that opportunity,” said DLN Sastri, director for oil refining and marketing at the Federation of Indian Petroleum Industry.
Reliance Chairman Mukesh Ambani also highlighted at the most recent annual general meeting that the company’s crude diversification strategy had helped in maximizing earnings.
“We made sustained efforts to source advantageous feedstock from diverse and complex geographies in a challenging environment. Our diversification efforts led to processing 60 grades of crude oil, including 13 new grades,” Ambani said.
“Freight markets skyrocketed due to geopolitical factors, with vessels coming under missile attacks in the Red Sea. We acted swiftly to control our freight costs, chartering more vessels on a long-term basis.”
The spike in Indian oil products exports to Europe coincides with Russia becoming the biggest supplier of crude to India, shipping an average 1.7 million b/d of crude in the January-September period, CAS data showed.
Analysts and trade sources have said that India is unlikely to trim its Russian crude purchases under a new Donald Trump government in the US, although the South Asian country could explore more term import contracts and collaboration on storage with the US, as well as explore opportunities for term contracts with relatively new suppliers, such as Guyana.
Source: Platt
