Page 37 - bneMagazine March 2023 oil discount

bne March 2023 Cover story I 37
the actual deals. They were always assessments, estimates made by the agencies, calculated from the three elements – Brent Dated price, Brent- Urals spread estimate and shipping,” says Vakulenko.
At the same time up to 1.6-1.8mn bpd leave Russia via the Far Eastern route, partially via ESOP pipeline to China, and partially via the port of Kozmino – deliveries that also operate outside the sanctions regime. The price of the ESOP blend is steadily above the $60 thresh- old on a FOB basis.
In late 2022 the Baltic trade between Primorsk and Rotterdam came to stop and the Baltic Exchange no longer has any data to form prices, but despite this the exchange is still quoting prices based on survey of traders and producers.
Since the European embargo, most Russian crude, loaded in the Baltics and the Black Sea, goes to India, predominantly to west coast refineries in the states of Gujarat and Kerala, and India doesn’t share its price information with the Baltic Exchange. Moreover, since January the number of tankers travelling to “Other Asia” has soared
as the market increasingly goes into dark mode, but many of these have also ended up in India, says Vakulenko.
Coincidentally, one of the largest refineries in India, Nayara Energy with 400,000 bpd capacity, is controlled by Rosneft. As bne IntelliNews reported,
the economics of Russian oil producers sending oil to their own foreign refineries is very different to selling oil on the open market, as the FOB price of exported crude is irrelevant. It is the profits earned by the company’s trading arm in the country of the refinery
from the sale of refined products that make the profits, not the cost of the company’s own crude shipped there as feedstock.
“Anecdotal evidence from traders suggests that Urals sells to other Indian refineries at a $6-$10 discount to Brent, dependent largely on the prices of Dubai and Oman crudes, which are
Foreign Minister Andrei Rudenko said on February 16 that India is still paying the full market price for oil. Rudenko said that Russian energy companies are working to fulfil orders as fast as possible and that India has not joined the price ceiling scheme. Deputy Prime Minister Alexander Novak said in February that India is still not getting
a discount to Brent prices. (chart)
“Despite popular belief that China
is getting large discounts on its purchases of Russian crude oil, this appears to be incorrect. In fact, we calculate an average price of $84 per barrel based on transactions reported to
“Anecdotal evidence from traders suggests that Urals sells to other Indian refineries at a $6-$10 discount to Brent, dependent largely on the prices of Dubai and Oman crudes”
Russian Crude Exports to India, March-November 2022, Monthly Volumes, MMbbl
the benchmark types in that part of
the world,” says Vakulenko. Indeed, Russia’s Ministry of Finance (MinFin)
is talking about abandoning the Urals price completely when calculating taxes and using the Dubai prices instead to improve its revenue collection.
More recently, reports show that the discount India was enjoying had fallen to zero in November, according to Indian customs data. Russian Deputy
Russia’s customs service – with pipeline oil slightly cheaper at $81/barrel vs. seaborne crude from Kozmino at $84/ barrel. While India receives a discount for Pacific Ocean shipments – as Russia is trying to gain alternative customers through all available export channels
– it is significantly smaller (by $10-11/ barrel),” SSRN reports.
The picture will not be clear until the January-to-March new customs data is released; as it takes a month for a tanker to steam from Russia those will be the first months that are affected by the EU embargos in December and February.
Abandoning the Baltic means to abandon a well establish market that used to provide a lot of information on prices and volumes.
“They are able to pretend they are sell- ing the crude below the price cap, gain access to insurance services from the Western markets, and collect additional revenues on the shipping leg, thus compensating them for the shortfall created by the formally low oil sale price,” Vakulenko says.
Source: Ministry of Commerce and Industry of India
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