Page 12 - FSUOGM Week 09 2023

FSUOGM PERFORMANCE FSUOGM

At its low point, Bloomberg reported, citing purchases define the closely watched European
Argus Media statistics, that the discount on Rus- Urals price,” Sergey Vakulenko, an oil specialists,
sia’s Urals oil compared to Brent had surged to said in a note for the Carnegie Centre.
50% so that on January 6, the oil price in the Bal- “The first group comprised refineries con-
tic port of Primorsk fell as low as $37.8 per barrel, nected to the Druzhba pipeline that were in
whereas the price of Brent crude oil on the same long-term contracts with Russian suppliers,
day was $78.57 per barrel – a difference of $40.8. with prices linked to the published Urals prices
And indeed, Russia’s budget revenues col- in the Mediterranean and northwest Europe.
lapsed in December after oil and gas reve- These refineries did not have any viable alterna-
nues crashed by 46% y/y. The federal budget tives to Russian supplies. The second group was
had been in surplus for 11 out of last year’s 12 made up of refineries fully or partially owned by
months, but suddenly plunged by almost RUB4 the Russian oil giants Rosneft and Lukoil, from
trillion ($53bn) in one month – more than the Romania to the Netherlands. Their volumes
planned deficit for the whole year – as the first were supplied directly by their Russian owners,
oil embargo came into effect, leaving the budget usually via European-registered trading arms,
with a 2.3% deficit at the end of the year. Like- such as LITASCO for Lukoil and Energopole
wise, the budget started January in equally poor for Rosneft. The third group consisted of a few
shape with a RUB1.76bn deficit – its lowest level refineries that were still willing to buy Russian
in a decade and almost as much as the planned crude on the open market. Only their purchased
deficit for the whole year. Mission accomplished. volumes impacted the European Urals price,”
But not so fast. While the headline discount added Vakulenko, who has written a series of
for Urals appears to be around $35 against the papers digging into the Urals price issue.
traditional $2 less than Brent sold for before With the volumes of Urals bought on the
the war, since the sanctions were threatened open market tumbling, the share of income from
the Urals price for oil has become increasingly this deeply discounted oil is dwindling, whereas
irrelevant. the piped oil is more consistent and the share of
More red flags were waved when the Cen- revenues earned from Russian companies send-
tral Bank of Russia (CBR) reported the current ing oil to their own refiners has soared.
account data for 2022. To make things worse, the discounts reported
“The updated current account forecasts are a in the open market part of the business have
bit confusing: the average oil price for 2022 was become unreliable, as the market has gone into
down by -$15/barrel, but the exports of oil was stealth mode as many market participants have
almost unchanged at about RUB0.5 trillion for stopped sharing their deals data.
the year, but should have been down about 10%. “[Oil news] agencies have gone over to
One hypothesis for this is the Bank of Russia conducting surveys: they call up traders and
believes Urals benchmark price is flawed and ask them what prices they pay and then quote
understates export price,” Alexander Isakov, that. Those numbers ended up in the press and
head of macroeconomic analysis at Bloomberg become the perceived price,” but it’s not neces-
and former head of research at VTB Capital said sarily representative of what the price is,” Elina
in a tweet in January. Ribakova, deputy chief economist at Institute of
Top oil analysts Chris Weafer, the founder International Finance (IIF), told bne IntelliNews
and CEO of Macro Advisory, and Christof in a recent podcast on the economic impact of
Ruehl, senior research scholar at the Centre on sanctions on Russia’s economy.
Global Energy Policy, told bne IntelliNews in a
recent podcast on oil that January was “just one Russian oil companies making record prof-
data point” and partly caused by both a change its
in the tax code and new large one-off payments, The exports from Russia to refineries owned
not just a collapse in Urals prices, adding that by Russian companies have soared as the lead-
the revenues will probably recover in March and ing Russian companies cash in on distortions
April at the latest. caused by the sanctions.
Vakulenko reports that most of the voyages
Three markets in one from Russia to Italy in recent months went to the
The first problem is the EU market for Russian ISAB refinery on Sicily owned by the Russian
crude imports is actually three markets: piped major Lukoil (which it has recently agreed to sell,
oil to countries like Hungary; Russian oil pro- but will retain its other refineries).
ducers delivering to their own refineries in Eu- Tankers going to the Netherlands, mean-
rope; and the open market import of Russian while, moored at the berth in Rotterdam har-
oil by European buyers. bour that feeds the Zeeland Refinery, in which
“There were three distinct groups of buyers Lukoil has a 45% stake. Lukoil also owns the
of Russian crude, and only one of those groups’ main Bulgarian refinery in Burgas on the Black

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