Page 33 - bneMagazine March 2023 oil discount

bne March 2023
Cover Story I 33
The discounts Russia is being forced to offer on its oil exports after a comprehensive embargo and oil price cap scheme was imposed on crude on December 5, and oil products on February 5, are deceptively big. Nearly half of Russia’s oil exports used to go to Europe, shipped through the Baltic Sea. That trade has almost stopped now. But Russia is still exporting as much oil as it used to but sending it half way around the planet
companies delivering their own oil to their own refineries in Europe; and European customers still willing to buy Russian crude on the open market. It is only the last group that is receiving the deep discounts and the volume of these sales is dwindling fast.
The headline price for Russia’s Urals blend in January was $46 a barrel against the $75 Brent was trading at on February 27, and well below the maxi-
“Economists have been looking for evidence of these whopping discounts – but they can’t find them”
to new customers in Asia. The problem is the deep headline discounts of up
to 50% or more are based on Baltic prices, whereas economists say Asian customers pay much smaller discounts, or none at all.
The EU embargo is enforced by sanctioning EU shipping companies that accept cargoes of oil priced at $60 per barrel or more. As bne IntelliNews reported, there are three markets in Europe: piped deliveries via the Soviet- era Druzhba pipeline where prices are set by long-term contract; Russian oil
Crude oil prices
mum allowed $60 threshold set by the oil price cap scheme.
Economists have been looking for evidence of these whopping discounts in national accounts, companies’ profit reporting and customs date – but they can’t find them.
“We do not find crude oil discounts as large as those reflected in Urals prices towards the end of 2022. In particular, prices in market segments that are unaffected by lower Europe and demand, e.g., exports from Russia’s Pacific
Sources: Bloomberg, Federal Customs Service, authors' calculations
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