DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange registered steep losses Monday afternoon, briefly sending the U.S. crude benchmark below $100 per barrel. The losses followed reports suggesting that China and India -- the world's first- and third-largest oil importers, are considering circumventing international sanctions slapped on Moscow in response for its aggression in Ukraine to purchase discounted Russian oil and commodities.

India is said to be working on the mechanisms that would allow it to purchase cheaper oil from Russia using its national currency, the Rupee, according to sources familiar with negotiations. Last year, Russia's oil shipments to India averaged 43,400 barrels per day (bpd), a marginal amount when compared to the 4.8 million bpd in India's total oil demand. That might soon change. Bloomberg reported that the country's top refiner, IOC, bought 3 million barrels (bbl) of Russian Urals crude via tender for May delivery -- its first purchase of the grade since Russia invaded Ukraine on Feb. 24.

Restricted financing and limited demand from Western buyers have forced Moscow to offer Asian buyers favorable terms to purchase its oil cargos.

Cheaper Russian crude can help Indian consumers and businesses to weather a major inflationary shock from surging commodity prices. India, a major U.S. ally, has neither condemned the Russian invasion of Ukraine nor imposed sanctions.

Just like India, China, Asia's largest economy, has not called Russia's military action against Ukraine an invasion and has abstained from a United Nation's Security Council vote condemning Russia. China is far more dependent on Russian oil and commodity trade than India.

Russia accounts for 15% of China's total oil demand, behind only Saudi Arabia. Out of 1.59 million bbl in daily crude oil shipments from Russia to China, 700,000 bpd being shipped via long-term contacts through the 2,540-mile East Siberia Ocean or ESPO pipeline. It must be noted that prior to the invasion of Ukraine, Beijing signed a 10-year extension to an existing deal with Russia for 200,000 bpd of oil supply. As Western companies exit Russian energy landscape, Chinese state-owned companies are said to be purchasing stakes in Russian oil and commodity companies, such as giant Gazprom and aluminum producer United Co. Rusal International.

Amidst this backdrop, it is not entirely surprising that Chinese officials reportedly pushed back against Western pressure to not provide economic and military assistance to Russian President Vladimir Putin's aggression in Ukraine. The cables, which were sent by the U.S. State Department to allies in Europe and Asia, were not specific about the level or the timing of any assistance that may be provided to Russia by China. U.S. officials believe China is trying to help Russia while its top officials publicly call for a diplomatic solution to the war. The situation remains fluid.

Oil traders are also closely monitoring a developing situation around a COVID-19 outbreak in China after health officials shut down the southern city of Shenzhen, a business hub of 17.5 million people, and restricted access to Shanghai by suspending transit services. China's coronavirus infections have risen exponentially in recent days, with cases concentrated in the country's large business and manufacturing centers, fueling concerns over a renewed hit to fuel demand.

Authorities in China are enforcing a "zero COVID tolerance" policy and have locked down entire cities to find and isolate every infected person -- a strategy that has hindered economic recovery. Late Monday, China's National Bureau of Statistics will release data on retail sales and industrial production for the first two months of the year that is likely to show a lopsided economic recovery underpinned by ongoing COVID outbreaks. China's stock market took a heavy beating on Monday, with key indexes listed in Hong Kong plummeting more than 7% and wiping out $2.1 trillion in market value.

At settlement, NYMEX April West Texas Intermediate fell $6.32 to $103.01 per bbl, and ICE Brent May contract plunged $5.77 to $106.90 per bbl. NYMEX April RBOB futures plummeted 14.32 cents to $3.1689 per gallon, and April ULSD futures slumped 14.13 cents to $3.2763 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com