Urals, the primary oil grade from Russia, had been trading at a premium to Brent in India and China since March, as turbulence in the Middle East impacted global oil supplies and increased the appetite for more affordable alternatives.
However, demand for Russian crude has decreased, the sources noted, as Asian refiners have tapped into their inventories, sought other options, and in some instances reduced production runs.
Urals shipments scheduled for delivery to India in July and August have seen discounts of $2 to $3 per barrel to dated Brent this month, contrasting with premiums of $7 to $8 per barrel observed in April and May, the sources indicated.
During the winter months in the northern hemisphere, Urals experienced discounts ranging from $7 to $8 per barrel as more stringent U.S. sanctions led to a decrease in Russian oil production. Last year, from June to August, discounts were around $1 to $3 per barrel.
While the Chinese and Indian markets closely follow each other, reduced purchasing by China has a wider impact on various grades. China imports less Urals than India but purchases a greater volume of lighter Russian grades such as ESPO Blend, Arctic, and Sakhalin crude.
In some instances, Chinese buyers have declined to accept Russian oil cargoes scheduled for June delivery, according to one source, making sellers more vulnerable in price discussions, as any unsold volumes might need to be stored on floating vessels.
Some smaller, independent Chinese refiners, often referred to as teapots, are reducing their production runs due to slim margins, which is contributing to lower crude prices.
