IEA stated that Russian oil has overcome the price ceiling

The average export price of Russian oil on a FOB basis (“loaded on board”) in the ports of Primorsk, Novorossiysk and Kozmino in April 2023 increased by 18.7% compared to the previous month and amounted to $60.12/bbl. This is stated in the monthly review of the International Energy Agency (IEA), published on May 16. Thus, the average price of a barrel of oil from Russia slightly exceeded the $60/bbl price ceiling set under anti-Russian sanctions.

Such a restrictive measure was proposed by the G7 countries (G7, includes the UK, Germany, Italy, Canada, USA, France, Japan) in mid-2022 after the start of the NWO in Ukraine. They were joined by other countries of the European Union (EU), Australia and a number of other states. The oil price ceiling came into effect on December 5 last year, simultaneously with the embargo on offshore oil supplies from Russia to the EU. The price cap means that companies from countries that have joined the ceiling cannot ship oil at a shipping price higher than the currently set $60/bbl, nor can they insure such shipments.

According to the IEA, in April the cost of Urals on the basis of FOB Primorsk increased by 24.5% to $55.35/bbl, and on FOB Novorossiysk – by 24.1% compared to March to $55.17/bbl. The cost of another grade of Russian oil – ESPO – on FOB Kozmino increased by 8.4% to $73.18/bbl.

The report explains that the increase in world oil prices in early April 2023 was affected by the announcement of several OPEC + countries on voluntary reductions in oil production. At the same time, the outlook for a more stable oil market led to a narrowing of the Urals discount to the North Sea Dated quote by 14% to just over $29/bbl. From April 5 to early May, the weighted average regularly exceeded $60/bbl, the authors of the review state.

On May 1, eight OPEC+ countries, including Saudi Arabia, began a voluntary cut in oil production, which will last until the end of this year. Russia began a voluntary production cut of 500,000 bbl/d in March of this year, then extended it until July, and later until the end of 2023. The nine countries’ combined production cuts were announced at 1.66 million bbl/d.

The North Sea Dated is a quote calculated by the pricing agency Argus based on the prices of five North Sea oil grades, including Brent. In April of this year, the Russian Federation adopted a law according to which this quotation will be taken into account when calculating export customs duties on oil along with the average price of Urals on world markets.

“Significant price discounts continue to support strong demand for Russian oil,” the IEA said in a report. According to the agency, in April 2023, the export of oil and oil products from Russia amounted to 8.3 million barrels per day, which was the highest level since the beginning of the NWO in Ukraine at the end of February 2022. At the same time, crude oil exports increased by 200,000 bbl/d compared to March 2023 and decreased by the same amount compared to April 2022 and amounted to 5.2 million bbl/d. And the export of petroleum products increased by 500,000 barrels per day in annual terms and decreased by 200,000 barrels per day compared to March this year to 3 million barrels per day.

Senior analyst Alfa Bank Nikita Blokhin explains that the cost of Russian oil in April 2023 rose against the backdrop of a shortage of supply on the market for heavy grades of this raw material. According to him, at the end of March, 750,000 barrels per day of “quite in demand for processing” heavy oil “left” the world oil market due to a reduction in production in Russia and the suspension of exports from Kurdistan through Turkey. By the end of April, the reduction in supply could reach 1 million barrels per day. This happened in anticipation of the opening of the automobile season and increased demand for fuel in most regions of the world. The announcement of other OPEC+ countries on voluntary cuts in oil production from May 1 also became a factor in price growth, influencing the cost of reference oil grades in global markets, Blokhin adds.

Rising prices for Russian oil may also mean that Russian companies have managed to find buyers for their oil and oil products, adds FG Finam analyst Alexander Potavin. Also, the cost of Russian oil and demand for it have grown due to the fact that the oil industry has adapted to Western sanctions and established payment and supply channels, he states.

According to Blokhin, current exchange prices do not reflect the real balance of supply and demand in the oil market, and this “will inevitably lead to the restoration of their value in the second half of the year.” According to Alfa-Bank’s forecasts, by the fourth quarter of this year, world oil prices will return to the level of $90/bbl. and higher against the backdrop of a further recovery in demand and voluntary restrictions taken on by the members of the OPEC + agreement at the beginning of the year.