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cheaper than Brent ($84). In December, Urals was sold 38% cheaper than Brent ($50.47 vs. $81.6). And in November, before the embargo came into force, Urals was only 25% cheaper than Brent ($68.7 versus $90.9). Despite the sanctions, in January and the first week of February, both production and exports of Russian oil grew. In the first week of February, production was only 1% lower than in pre-war February 2022, Kommersant wrote. This was only possible thanks to high discounts for Asian buyers, analysts told the newspaper.
A Brent-based reference price more a technical move than a tax hike. The government’s decision to move tax links from illiquid and unreliable Urals quotes to Brent, accompanied by set and declining discounts, has two implications. First, the opacity of the actual price of Urals crude means that Russian oil companies may well have been earning margins above those intended by the tax code’s designers. Thus, the tax changes may be mostly a reversion-to-the-mean effort in terms of per-barrel profitability. Second, having an explicit and declining discount to Brent set in the tax code may well improve the negotiating position of Russia’s oil exporters, perhaps raising the average realized price for the country.
FT analysis suggests that the volumes of Russian crude being shipped on vessels identified as being part of the “ghost fleet” have surged from less than 3mn barrels in November to more than 9mn barrels in January. Some of the ships now serving the Russian route are vessels previously identified as likely to be part of Moscow’s own shadow fleet, a covertly controlled operation assembled over the past year. Shipbrokers have estimated that it consists of around 100 vessels. Tankers in Iran’s “ghost fleet” have switched to carrying Russian oil since western curbs on Moscow intensified in December, as the Kremlin turned to sanctions-busting techniques pioneered by Tehran. At least 16 vessels that formed part of the “ghost” network that allowed Iran to breach US sanctions have begun to ship Russian crude oil over the past two months, according to Financial Times research. The premium for Russian trade is at least 50% above the normal market rates and could be even more than 100% in some instances, making the economics even more attractive than shipping Iranian oil.
India and China appear to have stepped up purchases of Russian oil crude in December 2022.
141 RUSSIA Country Report March 2023 www.intellinews.com