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India and China drive Russian oil revenues beyond Western price cap

India and China have snapped up the vast majority of Russian oil so far in April at prices above the Western price cap of $60 per barrel, according to traders and Reuters news agency calculations.

That means the Kremlin is enjoying stronger revenues despite the West’s attempts to curb funds for Russia’s military operations in Ukraine.

A G7 source told Reuters on Monday the Western price cap would remain unchanged for now, despite pressure from some European Union countries, such as Poland, to lower the cap to increase pressure on Moscow.

The advocates of the cap say it reduces revenues for Russia while allowing oil to flow, but its opponents say it is too soft to force Russia to backtrack on its activities in Ukraine.

The latest data from Refinitiv Eikon suggest that Russian Urals oil cargoes that loaded in the first half of April are mostly heading to India’s and China’s ports.

READ MORE: India, Russia eye trade agreement despite opposition from Western countries

Don’t abide by the price cap

India accounts for more than 70 percent of the seaborne supplies of the grade so far this month and China for about 20 percent, calculations show.

Meanwhile, lower freight rates and smaller discounts for the Urals against global benchmarks nudged the daily price of the grade back above the cap earlier in April from a period of trading below.

India and China have not agreed to abide by the price cap, but the West had hoped the threat of sanctions might deter traders from helping those countries buy oil above the cap.

Average discounts for Urals were at $13 per barrel to dated Brent on a DES (delivered ex-ship) basis in Indian ports and $9 to ICE Brent in Chinese ports, according to traders, while shipping costs were $10.5 a barrel and $14 a barrel respectively for loadings from Baltic ports to India and China.

That means the Urals price on a free on-board (FOB) basis in Baltic ports, allowing about $2 per barrel of additional transport costs, has been slightly above $60 per barrel so far in April, Reuters calculations show.

Cuts by OPEC+ group

Shipping costs have come down significantly in recent weeks as Russian port ice conditions eased and more tankers became available.

Freight rates for Urals cargoes loading in Baltic ports for delivery to India have eased to $7.5-$7.6 million from $8-$8.1 million two weeks ago, two traders said.

The cost of tanker shipment from Baltic ports to China was $10 million, down from nearly $11 million a couple of weeks ago, they added.

During winter, freight costs for Urals cargoes jumped above $12 million for both India and China.

Lower freight costs suggest Russian oil suppliers have secured enough vessels even given long distances, the traders said.

Meanwhile, output cuts announced by the OPEC+ group of oil producers at the start of April have also boosted values for various grades around the world, including Urals.

READ MORE: Russia’s energy giant Rosneft signs deal to boost oil supplies to India

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