Argus launches Urals quotation in Indian ports

The Argus pricing agency has launched the calculation of the quotation for Russian Urals oil in India. This was reported to Vedomosti on March 9, 2023 by a source familiar with the data of traders, and confirmed by a representative of Argus.

The listing was launched on Feb. 27 on a DAP (delivery to destination) basis on the west coast of India, the source said. DAP assumes that the risks associated with the delivery of goods are transferred to the buyer only at the port of destination, he clarifies. Until March 6, Urals’ discount to dated Brent within the framework of the new Argus quote, according to him, “remained stable” at $16/bbl, on March 7 it rose to $17/bbl. and is currently at that level.

The quotation in India, according to him, was launched, as this country has become one of the largest buyers of Russian oil, the source explains. India accounts for about 70% of Urals sea exports. For 12 months of 2022, Russia exported 33.4 million tons of oil to India. Moreover, in December, India increased its oil purchases in the Russian Federation by 33 times compared to the same period in 2021 to 1.2 million barrels per day, Bloomberg reported earlier.

As Vedomosti wrote, at the end of January 2023, the quotation of the price of Russian oil in Indian ports was launched by S&P Global Platts (it left Russia in March 2022). Two sources familiar with the traders’ data said at the time that it was minus $18/bbl as of February 1st. to the reference Brent. One of them pointed out that the Platts quote takes into account the price of oil, cargo insurance and freight, which makes it “more representative” than the Argus benchmarks.

Until October 2022, Argus calculated the Urals quote on a CIF (“shipped to”) basis in European ports. But after the introduction of the European Union (EU) embargo on offshore supplies of Russian oil, which came into force on December 5, 2022, it has become unrepresentative. The agency explained then that the redirection of supplies of crude oil from Europe to the Asian market led to a drop in trading activity in Northwestern Europe and the Mediterranean and to “a decrease in the importance of these areas for assessing the value of the Russian variety.”

Then Argus launched an alternative Urals quotation on the basis of FOB (“loading on board”) in the ports of Primorsk, Ust-Luga and Novorossiysk, which made it possible to take into account oil consignments “shipped from Russia in any direction.” But, as Vedomosti sources pointed out, it was not completely an objective benchmark due to the fact that it did not take into account insurance and the price of freight.

Argus quotes are now used by the Russian government to determine the amount of mineral extraction tax (MET), additional income tax (ATD) and oil export duties (before the sanctions, the Ministry of Finance used Platts and Reuters quotes). At the same time, Russian Deputy Finance Minister Alexei Sazanov said that the ministry would analyze alternative oil prices in the first quarter of 2023.

In mid-February, the State Duma adopted a law specifying the average export price of Urals when calculating the MET and AIT. It provides for limiting the discount on Urals for taxation from April 2023. The maximum discount for Urals is set by law at $34/bbl. from the average Brent price. If it is higher in April, the MET and AIT will still be calculated based on the cost of Urals with a discount of $34. Accordingly, in May, when taxing, the price of a barrel of Urals is taken into account as the cost of Brent minus $31, in June a discount of $28 is applied, and from July – $25.

The Ministry of Finance explained that the transitional period for applying discounts to Brent will allow oil companies “to adapt to the new procedure for calculating taxes based on Urals quotes.” The average price for Urals oil in January-February 2023, according to the Ministry of Finance, was at the level of $49.52/bbl. The May (nearest) Brent futures is traded on March 9 at $82.8/bbl, follows from the data of the ICE exchange.

Stock market expertBCS The world of investment” Igor Galaktionov believes that on the horizon of 3-4 months, discounts on Russian oil “will decrease as logistics normalizes”. Vasily Tanurkov, director of the ACRA corporate ratings group, agrees with this: “From the beginning of March, there has already been a slight decrease in discounts compared to January and February,” he said.

Tanurkov adds that the Argus quote will only reflect the country risk discount, but the level of overheads is unclear. “In conditions when the cost of freight and insurance for Russian oil is very high, it is necessary to additionally take into account overhead costs for tax purposes,” he believes.

Ekaterina Krylova, managing expert of the PSB Center for Analytics and Expertise, also believes that for tax calculation, “it is advisable to take a price tied to an international benchmark, and not a survey price, and only for India.” She, in particular, draws attention to the fact that China is also a major buyer of Russian oil (the volume of exports by sea and pipeline transport in 2022 amounted to 86.25 million tons – Vedomosti).

Vedomosti sent a request to the Ministry of Finance.