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FSUOGM MARKETS FSUOGM

Russian Urals trading higher

than price assessments

RUSSIA ANALYSTS have noted that the discount of he wrote. “The price of oil in real contracts used
Russia’s Urals oil versus other major global to be somewhat transparent, but now the scope
Urals may be selling benchmarks may be smaller than according to for independent evaluation has dissipated. The
for more than the West quoted price assessments, meaning that Russian rates of delivery of Russian oil to Indian ports are
suspects. producers may be earning more than is believed. unknown and opaque.”
Russia announced on February 10 it was India alongside China has greatly expanded
curbing its oil production by 500,000 barrels per Russian oil purchases over the past year.
day starting next month – equivalent to around “We cannot exclude the possibility that, in
5% of national output – in response to West- reality, the discounts on Russian oil are not as
ern price caps on its petroleum products that large as they seem, and, indeed, the low price in
were introduced earlier this month. The caps contracts may be beneficial to both Russian sup-
are expected to further curb Russian revenues, pliers and the Russian government,” Vakulenko
which have already been impacted by embargoes continued.
on its oil and petroleum products by EU and G7 The analyst explains that very little oil is actu-
countries, and a Western price cap slapped on its ally sold at the Urals price, and that it only rep-
crude oil exports in December. resents an average of FOB Primorsk and FOB
At the same time, Urals is reported to be Novorossiysk price assessments, calculated
trading at a historic discount to Brent and according to methodology that has become irrel-
other global benchmarks. But according to evant in the current market.
some analysts, the situation may not be as bad He estimates that the actual sales price of
as it seems. Urals crude in its main market is around $70-
Analysts at BCS Global Markets (BCS GM) 75 per barrel, which surpasses the Western price
note that while the quoted price differential cap.
between Russian Urals and Brent has fallen to “The non-transparent shipping market cre-
nearly $40 per barrel since early December, the ates a mechanism for evading the price cap and
gap between the quoted price and the average channelling a large portion of Russian oil reve-
effective price widened to $25 per barrel, and nues to shadow accounts,” he said. “A large quan-
that this explains why Russian production has so tity of seaborne Russian crude (up to 800,000
far remained resilient. bpd, 20% of the total seaborne volumes) is sold at
While it may seem that Urals is trading below $70 per barrel or more on FOB basis, thus openly
the $60 per barrel oil price cap introduced in defying the cap.”
December, the actual price paid by buyers is The caps work by barring Western companies
opaque, Sergey Vakulenko, independent energy from providing any types of services for Russian
analyst, noted in an article in late January. oil cargoes. This is particularly important when
“The conditions of and mechanisms for the it comes to insurance and shipping services, as
supply of Russian oil to Indian ports differ from the majority of insurers and shipping firms are
those of former shipments to European ports,” registered in EU and G7 countries. ™

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