Page 11 - FSUOGM Week 09 2023

FSUOGM PERFORMANCE FSUOGM

Urals oil price is increasingly meaningless,

allowing Russian-owned refineries in Europe

to build up slush funds

UKRAINE AFTER the twin price cap sanctions were oil companies continue to report record profits.
imposed on Russian oil exports on December 5 What appears to be happening is the budget
Urals price assessments and February 5, Ukraine’s supporters cheered as has indeed seen a sharp fall in revenues, but the
increasingly do not the cost of Russia’s key Urals blend collapsed to a leading oil comapnies are still making huge prof-
show how much low of $37.8 per barrel at a time when Brent was its. The sanctions mean they are no longer inter-
revenue Russia is really trading over $80. ested in reporting large profits but instead report
making from its oil The trouble is, the price of the Urals oil price is as low a price for selling Urals as possible, which
exports. increasingly meaningless. And that is a problem, reduces their tax burden. In what is tantamount
as the two oil price schemes are tied to the Urals to a new transfer pricing scheme, the difference
FOB (free on board) price of oil and so give the between the price the companies report and the
Kremlin a way to export its oil at much higher cash they actually make accumulates in thier
prices without breaking the oil price cap ceiling non-transparent offshore trading companies,
of $60. A recent study showed that Russian oil creating a huge slush fund that in theory the
companies are actually getting over $80 per bar- Kremlin has access to.
rel in cash for a barrel, despite the fact that the
FOB Urals price is under $50. Urals price dynamics
The evidence that games are being played The goal of the two sanctions, coupled with an
has been building in the last month. In a sign EU embargo on buying Russian oil, was to cut
that something was up with the Urals price, in the Kremlin off from its most lucrative source
January the Ministry of Finance (MinFin) aban- of earnings but at the same time keep Russian
doned using Urals as the trigger for the budget oil flowing into the market and to avoid a price
rule that determines when excess oil revenues spike. The breakeven price for the Russian
are siphoned off into the National Welfare Fund budget in the budget law assumes a Urals price
(NWF). Now it uses a calculation of the actual of $70.2 per barrel.
revenues earned from oil exports to set the Last year the average price of oil was on a par
threshold, ignoring the price of Urals. with the budget assumption but tumbled by a
Then budget revenues from oil and gas reve- quarter in December year on year to $50.47 and
nus collapsed in December and January, but the then again to $46.82 in January.

Week 09 02•March•2023 www. NEWSBASE .com P11