Russian oil broke through the price ceiling: what will happen to exports

Moscow faces tough sanctions pressure

Russian oil for the first time broke through the G7 price “ceiling” of $60 per barrel. Until recently, the sanction bar was considered only speculatively, since raw materials from our country were sold at a discount and cost much less. Now the cost of the domestic “barrel” has overcome this border and is ready to rise even higher. Accordingly, Russia risks facing a wide range of restrictive measures from our enemies: from deprivation of insurance of tankers carrying our “black gold” to a complete ban on ships entering European ports.

The fact that Western sanctions on the export of Russian oil have moved from the category of theoretical horror stories to harsh reality, Bloomberg warned, citing data from the Argus pricing agency. The cost of Urals grade in the ports of Novorossiysk and Primorsk, from where domestic liquid hydrocarbons are usually shipped abroad, has overcome the “ceiling” of $60 per barrel – for the first time since its introduction. Which is not surprising: the quotes of the benchmark Brent grade, to which the cost of Urals is tied, exceeded the level of $80 per barrel. And since Russia, Saudi Arabia and other members of the OPEC+ mining alliance have announced a significant reduction in export supplies, thereby significantly limiting the supply of raw materials, there is no doubt that the growth of the barrel will continue further. Whether Russia is happy or upset about the current situation on the planet’s energy market is not yet clear. According to MK experts, the development of events will depend on the mood of Russia’s new trading partners – India and China: whether or not they will agree to pay a price exceeding the “ceiling” for Russian raw materials.

Fedor SIDOROV, financial analyst, private investor:

“I would like to believe that an increase in the price of Urals over $60 per barrel will not have a dramatic impact on the export of Russian oil, which has long been under sanctions. Our country has already found ways around the restrictions. There will always be buyers for domestic raw materials: Bulgaria, Turkey, Serbia and other countries interested primarily in supporting their own industry, largely dependent on cheaper Russian hydrocarbons and not seeking to cause financial damage to Moscow.

Do not forget about the eastern direction: India, China, Pakistan and Bangladesh, willingly buying our “black gold”. True, the western sanctions that are putting pressure on Russia give them an opportunity to bargain: now the discount has been reduced to a minimum, but it does not cost anything for Asian consumers to take advantage of the opportunity to convince Russian suppliers to increase the discount for a short time. However, one way or another, Russia is quite actively using the “shadow fleet” for oil supplies. When the price of Urals crosses the threshold set by the West, the share of traffic in this way will simply increase. Surely the G7 will try to expand the bans and obstacles, including more carefully checking the issuance of accompanying documentation and controlling ship calls to ports. Ways to overcome such measures are already known and tested. First, you can continue to transfer raw materials from tanker to tanker in neutral waters. With this option, it will be extremely difficult to verify the origin of oil in practice. Secondly, there is no unity in Europe on the issue of restrictions, as the latest packages of sanctions hit the economies of individual EU members more and more. Therefore, we can assume that the West will apply sanctions at its own discretion: in the event that it turns out to be beneficial for someone in Europe to allow a batch of “toxic” hydrocarbons to pass to international ports, such a deal will be turned a blind eye.”

Natalia MILCHAKOVA, Leading Analyst at Freedom Finance Global:

“Russian oil will be bought by the same consumers who previously bought Urals and other grades not only for $60, but also for $80 and more, including EU countries that receive raw materials through the southern branch of the Druzhba oil pipeline. It cannot be ruled out that some European states will make deals with intermediaries and buy our “black gold” mixed with varieties from other producing regions. No one will refuse to purchase Russian hydrocarbons due to the excess of the “ceiling”, since it will be difficult to find cheaper grades in a larger volume.

The Urals discount to Brent will in any case decrease as Russia stops “marketing” discounts for new customers while redirecting export flows from Europe to Asia. The market is expected to face a shortage of energy resources this year and next. Accordingly, Russian oil will continue to be in demand. In addition, the countries of North Africa have not joined the oil price ceiling, which means that they will also buy our raw materials at market value.

The sanctions associated with the “ceiling” have so far shown little effectiveness. The “citizenship” of oil shipped by sea is usually checked against the accompanying documents, which indicate the port of shipment. European regulators intend to track the movement of all tankers at sea in order to “catch by the hand” and in the future not let ships into their ports that mix (blend) Russian raw materials with non-sanctioned products. Meanwhile, it is possible to mix oil on the territory of third countries and sell it to the West under completely legal documents, although the final buyer will certainly know that he has purchased goods from Russia. Iran has been using such schemes for a long time. Another way to “whiten” Russian hydrocarbons is to refine our oil at the facilities of India and China, and send finished products to Europe. So the achievement of the Urals price “ceiling” is not a tragic end, but only an intermediate milestone in the confrontation between the Western world and Russian export flows.”