Sharp Decline in Russian Oil Prices as Major Buyers in India and China Halt Purchases Ahead of Sanctions

Russian oil prices have experienced a significant decline as Indian and Chinese refiners scaled back their purchases in anticipation of a U.S. sanctions deadline aimed at state-run firms Rosneft and Lukoil.

At the close of last week, the price of Urals crude, which is Russia’s primary export blend, dropped to $36.61 per barrel for shipments from Novorossiysk, as reported by Bloomberg on Monday, referring to data from Argus Media.

The difference between Urals and the North Sea benchmark Brent has increased to $23.51 per barrel, marking the widest gap since March 2023.

Previously, Urals generally traded at a discount of $12 to $13 before the latest U.S. sanctions were announced. This discount has nearly doubled since, approaching the early 2023 record of $40.

The pressure on prices has surged as the November 21 deadline nears, by which all dealings with Rosneft and Lukoil must be concluded.

Several prominent Indian refiners, including Reliance Industries, Bharat Petroleum, Hindustan Petroleum, Mangalore Refinery and Petrochemicals, and HPCL-Mittal Energy, have already ceased direct purchases from these companies. Collectively, they previously imported about 1 million barrels of Russian crude daily.

Additionally, state-owned Chinese refiners Sinopec and PetroChina, along with smaller private facilities, have also halted direct buying.

This «buyer strike» has impacted nearly 45% of Russian oil exports to China, according to data from Rystad Energy reported by Bloomberg earlier this month.

The abrupt decline in demand has resulted in Russian suppliers holding increasingly large quantities of oil at sea.

JPMorgan estimates that roughly one-third of Russia’s maritime oil exports, equating to about 1.4 million barrels per day, are now stored on tankers functioning as floating storage.

«Russia’s oil exports are entering a new stage of disruption as sanctions targeting Rosneft and Lukoil are set to be activated, leading its two largest clients—India and China—to significantly lower their December orders,» noted analysts at JPMorgan.

The Kremlin is preparing for another blow to its budget revenues, which have already diminished by over 20% this year, according to a report from Bloomberg in September.

Rosneft and Lukoil represent approximately half of Russia’s crude exports at 2.2 million barrels per day. If Surgutneftegaz and Gazprom Neft are included—both already under U.S. blocking sanctions—around 70% of Russia’s export volumes are now impacted.