Battle for the discount: Russian oil quotes rose after a decline in its production

Moscow has found a way to cut the discounts domestic oil exporters are forced to give to Asian customers because of Western sanctions imposed on the export of Russian hydrocarbons. According to Deputy Prime Minister Alexander Novak, the reduction in oil production by 500 thousand barrels per day in March, which our country voluntarily decided on, led to a reduction in the discount on oil of the domestic export brand Urals.

Russia extended the period of production cuts until July. True, whether such a maneuver will strengthen the export earnings of our country is a big question.

Compared to mid-January, the discount on Russian oil, with which our raw materials are bought by current foreign consumers, has decreased by an average of $ 8 per barrel, the Deputy Prime Minister said. According to Novak, this was the result of Moscow’s earlier decision to voluntarily reduce the daily production of raw materials by 500 thousand barrels, approved at first only for March, and then extended until the middle of this summer.

“With the normalization and stabilization of the situation, the establishment of logistics chains and transport supplies, the discount will continue to decrease,” the Deputy Prime Minister encouraged.

The discounts at which our producers now have to export oil are due to the package of sanctions imposed against our country by the members of the G7 and the European Union. We are talking about both the price “ceiling” of $60 per barrel of Russian raw materials, introduced by the West in December last year, and transport restrictions on supplies to the states of the Old World through pipelines and sea routes. As a result, the export of “black gold” to the market of the continent, according to Bloomberg, fell by 54%, to 1.6 million “barrels” per day.

True, at the same time, daily deliveries of Russian oil to China increased by a quarter and reached a record level of almost 2 million barrels. In order to quickly realize the released volumes, Russia was forced to offer its Asian partners a significant discount. According to the Energy Development Center, the difference between the sale of a barrel of Urals and Brent exceeded $30, of course, not in favor of West Siberian energy carriers.

At the end of February, the Tax Code was amended to prevent exporters from offering foreign buyers too “generous” discounts – so as not to drastically reduce tax revenues to the treasury. What will happen next with the cost of the Urals brand and discounts for it? This question “MK” addressed to the experts.

Fedor Sidorov, financial analyst, private investor: “Reducing oil production in Russia by 500 thousand barrels per day – rather, a forced step due to the decline in the export capabilities of our country. Nevertheless, one cannot but admit that the discount is gradually decreasing: if in January a barrel of Russian “black gold” traded at an average of $47, in February its price rose to $49.5, and in March the domestic “barrel” reached $55 .

Buyers are gradually getting used to the new terms of delivery, when Russia acts around various restrictions from the West, including cargo insurance.

Now, for Russian oil, Brent oil quotes on the world market are becoming much more important, the cost of which is falling due to fears of a global recession against the backdrop of a banking crisis in the US and Europe. Under such conditions, even if the Urals discount to the North Sea Brent grade decreases even more, the final cost of our raw materials will not increase much. The course to reduce production will continue, as Western restrictions have been introduced on the purchase of Russian oil products, the sale of which will fall. As a result, production will have to be reduced, since domestic refineries, in the face of declining exports, will not be able to process significant volumes of “black gold”, but such an initiative may not bring additional Urals dollars.”

Vladimir Chernov, analyst at Freedom Finance Global: “The decline in production in Russia has affected domestic oil companies. To offset the loss of profit from the reduction in production, they began to slightly reduce the discount on Russian oil. From April 1, our country decided to tie the mineral extraction tax (MET) to the cost of the Urals export grade, while limiting the discount on raw materials. Now producers have to make a choice: either put up with the increase in fiscal payments, or seek higher rates from importers. Most likely, commodity holdings have already begun to prepare for this and reduce the discount for the new formula for calculating the MET.

However, new risks have also emerged. According to the representatives of the European Union, economic pressure on Moscow will continue, and the next package of anti-Russian sanctions will provide for the improvement of the mechanism for monitoring the implementation of restrictions by third countries. With increasing pressure, it will become much more difficult to keep importers and reduce the discount, so it is not certain that the current measures will lead our energy industry to the desired result.”

Dmitry Alexandrov, Head of Analytical Research Department, IVA Partners Investment Company: “Reduction of the discount with stable demand for energy resources is quite possible. With cuts in production and supply, competition between buyers interested in raw materials increases. At the same time, stocks are formed, while the discount is still significant.

The full discount is unlikely to return the difference between Urals and Brent to the previous values ​​of $2-3 per barrel, but to a level of 10-15% (even taking into account the fall in discounts, the North Sea brand is still traded 25% more expensive than Russian “black gold”) reduction in discounts quite feasible.”