oil output Vitol
Vitol Group, the largest independent oil trader, has announced plans to stop purchasing Russian crude by the end of 2022. In its statement, the company noted that during the second quarter the volume of oil it processes from Russia would fall significantly. Similar discussions have emerged from the Swiss-D Dutch trading house, even though the European Union has not imposed a full oil embargo on Moscow.
While Vitol’s move can be read as a response to deteriorating political and economic ties between the EU and Russia, Indian Oil Corporation’s actions in the Moscow-friendly Indian oil market appear more puzzling. The decision to avoid the Russian Urals at a discount to Brent seems symbolic against the backdrop of U.S. push to steer New Delhi toward Moscow energy purchases.
Yet, Sergey Kondratyev, a senior analyst at the Institute of Energy and Finance, cautions in a conversation with socialbites.ca that Vitol and Indian Oil’s situations are not the same. Both European and Indian players, he notes, are unlikely to drop Russian crude entirely, despite the perceived risk or “toxicity.”
“The Indian Oil Company’s refusal to buy Russian Urals is not a trend; it’s an isolated incident. Other varieties, including Das, Eugene Island, and Thunder Horse, have faced similar adjustments. Local refineries require low-sulfur oil. From the outside, India’s stance may read as political, but the underlying reasons are more grounded in market realities,” the analyst explained.
Vitol’s role in Russia’s oil exports
Until recently, the Swiss-Dutch energy giant held a meaningful position in Russia’s oil trade. Alexander Frolov, Deputy Director General of the National Energy Institute, notes that Vitol’s yearly purchases are an order of magnitude smaller than Moscow’s dealings with Chinese buyers.
“Vitol ranks among the twenty largest buyers of Russian crude. The European trader bought roughly 3.5–5 million tons from Moscow each year. By comparison, the two biggest Chinese oil firms import about 50 million tons,” he said.
He added that it is unlikely that Vitol, which still maintains an ownership stake in Vostok Oil, the world’s largest oil project, will abandon multi‑million-dollar Russian trade amid Western sanctions pressure.
“Vitol’s activity in Russian commodities relies on long-term contracts. In practice, most purchases would continue beyond 2022. Even if the EU imposes a sixth sanctions package, Vitol could mimic past moves by blending Russian Urals with Latvian grades and routing the mix to European markets,” the analyst suggested.
Frolov pointed out that Shell has faced similar scrutiny for blending grades and continuing purchases, illustrating how major players adapt under pressure.
“The main cost for the Russian budget would be Vitol’s withdrawal from direct buy-sell flows. While the impact could amount to a few hundred million dollars, the bulk of revenue from long-term contracts would still flow to the treasury.”
How can Russia maintain its oil customers?
Against the possibility of further EU restrictions, Moscow’s strongest lever to preserve demand for Ural oil is to widen the discount to Brent. Kondratiev suggests the discount could rise as Western pressure intensifies.
“Urals are currently offered with a discount near 35 dollars per barrel to Brent, while the Indian basket carries a discount above 30 dollars. For New Delhi, Russian oil remains a priority in the medium term.”
He adds that a severe EU embargo would compel Russia to deepen price discounts even further. Such a move could help India and China retain their positions in Russian exports.
“If Brent stands above 100 dollars and Urals hover around 70 dollars, Russia loses millions compared with traditional discounts. Yet the country could offset some losses by expanding oil shipments to Asia,” he observed.
In a scenario where Europe imposes a broader oil ban, the Urals discount could spike to levels once deemed unlikely, potentially reaching 40–50 dollars per Brent barrel.
What would be the effect on Russia’s exports?
Even with a near 30% price reduction for Urals, Russian oil and product exports dipped by about 31.8% in early March 2022, averaging around 2.5 million barrels per day. The International Energy Agency (IEA) later warned Gazeta.ru that Russian exports might fall further in April, potentially to about 3 million barrels per day.
Despite the lingering negative perception of Russian oil, Kondratyev notes that Western counterparties could still find pathways to circumvent restrictions with Moscow. End consumers in Europe might turn to traders other than Vitol who are willing to supply Russian crude. The Litasco subsidiary under Lukoil is cited as one such example.
Other large traders could follow similar routes. In European eyes, buying through intermediaries located within jurisdictions under European influence can appear less directly toxic than handling Russian crude through direct channels. This approach can help Russia offset parts of the export decline and maintain a significant European role as a crude supplier, Kondratyev adds.