Post the 21st Nov deadline on Rosneft & Lukoil by US sanctions, markets expected some fall in Russian crude exports. This reflected in Russian crude prices too as price differentials for all major Russian crude grades widened significantly. Urals DAP India and ESPO CFR China are now trading at their steepest discounts over Dubai crude in nearly a year. Yet real time shipping data tells a different picture. Imports into China, India, and Turkey, the three primary buyers, have continued at broadly stable levels since 21st Nov. Indian imports of Russian oil may have fallen modestly, but likely less than half of the August rate of 1.6 mmb/d, because Middle Eastern selling prices to Asia for December have fallen, not risen. For e.g. December official selling prices to Asia by OPEC’s two largest producers, Saudi Arabia (Arab Light and Medium) and Iraq (Basrah Heavy and Medium), have fallen by -USD 1.20 to -USD 1.40/bbl in December (see chart below). This would be the opposite of what one would expect if Indian refiners were substituting Middle East crude for Russian crude in significant size, heightening competition for that supply. We expect that the disruption to Russian imports might be largest in December, and then moderate during early 2026 as Indian refiners and oil traders involved as middlemen adapt their practices. To some extent, current US administration should be comfortable with such dynamics. This is especially critical as we approach the crucial 2026 US congress elections & affordability issues for US consumer take precedence over foreign policy needs. Sanctions enforcement has been known to be flexible in the past with this goal in mind, in relation to Iranian oil. Combined imports of Russian crude into China, India and Turkey post 21st Nov have remained broadly consistent with August–October averages, even edging slightly higher by roughly 50 kbd. Non-sanctioned companies increased their exports by almost 400 kbd during this period. Sanctioned companies saw a decline of about 350 kbd. The largest decline came from Lukoil, whose exports dropped by more than 0.5 mbd, falling below 100 kbd. Rosneft, in contrast, has sharply expanded its presence. This divergence may be attributed to deeper discounts and greater logistical flexibility offered by Rosneft. Chinese imports of Russian crude have also remained robust after the November 21st deadline. According to Kpler-tracked data, flows rose to 1.3 mbd in post 21st Nov period, up from an average 1.2 mbd during August–October. China’s decision to issue 7.4 Mt of additional crude import quotas to approximately twenty independent “teapot” refiners for use through year-end, equivalent to 1.4 mbd over the remaining 38 days, provides a significant boost to the sanctioned crude market. Russian refined product exports continue to run well below seasonal norms, holding near 1.9 mbd, compared to 2.4 mbd during the summer. But if there is a Russia Ukraine peace deal, we estimate Brent moving towards sub 60 levels from current 63.5 levels as an immediate response. In our opinion, Brent might eventually head towards $50 levels if there is a peace deal and OPEC supply continues at current elevated levels. We would expect a stronger immediate decline in refined product prices from a potential deal. Risk premium for European gasoil/diesel margin above its fair value has already dropped from $15/bbl last week to $7/bbl on peace talks headlines, and we see diesel margins declining by a further $6-$8/bbl if the peace talks succeed, with contributions from a lower risk premium and lower freight rates. Further fall in Brent prices can happen if US forces attack Venezuela and lead to change in political leadership. Eventually this will lead to removal of US sanctions and more supply from Venezuela. Venezuela currently produces 1mbpd supported by black market sales but a full stage recovery of peak production to 2.5 mbpd of 2011 levels can’t be ruled out.
