Russian oil is asked to bend down – Newspaper Kommersant No. 43 (7488) of 03/15/2023

The EU proposes to lower the ceiling on Russian oil in March by $5 per barrel to $55, the US Treasury said. Washington has not yet formed a position and is waiting for IEA estimates on the price of Russian oil and the potential impact of lowering the ceiling level on the oil market. In February, the cost of Russian Urals oil was well below the ceiling at $50 per barrel. Experts do not expect that the lowering of the ceiling will have a significant impact on the volume of Russian exports, and its prices will depend on the dynamics of oil demand in the world and the position of India and China.

The US, EU and G7 countries may revise the price ceiling for Russian oil in March, while the EU proposes to lower it by $5 per barrel, said Ben Harris, Assistant Treasury Secretary, who oversees the setting of restrictions on oil from the Russian Federation.

“We will listen to the International Energy Agency and see what they have to say. And then we will do our assessment. Whether there will be an adjustment depends on what we find out as part of the review, ”TASS quoted the official as saying.

The ceiling price for Russian oil at $60 per barrel came into force on December 5 last year, simultaneously with the EU embargo on the purchase of offshore shipments of Russian oil. The US and G7 countries also joined the ceiling. Two ceiling levels were set for petroleum products: $100 per barrel for gasoline and diesel fuel, $45 per barrel for fuel oil and naphtha. Companies from the G7 countries and the EU are prohibited from transporting, insuring and conducting any transactions with Russian oil if it was sold at a price above the ceiling. It was assumed that in March the ceiling could be revised, after which the EU was going to monitor every two months.

The Russian authorities said they did not recognize the price ceiling and banned companies from referring to it in contracts. As “Kommersant” wrote, the price ceiling did not lead to a drop in production in the Russian Federation, but brought down the cost of Urals, which led to an increase in the budget deficit. This prompted the Russian authorities to change the method of calculating the price of oil to tax oil companies. Since April, the maximum discount for Urals to Brent for tax purposes cannot exceed $34 per barrel, and from July – $25 per barrel. Brent quotes were declining on March 14 – May futures fell to $78 per barrel.

Lowering the ceiling could put additional pressure on the price of Urals, but its price is already below the ceiling of $60 per barrel.

So, in February, Russian oil cost about $50 per barrel, according to the Ministry of Finance, that is, the discount to Brent was about $30 per barrel.

According to Kommersant’s interlocutors, Russian oil companies were able to adapt to the price ceiling. For example, lowering the marginal price of gasoline and diesel fuel by $5 per barrel is unlikely to affect their cost in the short term, the real price is already below the ceiling, notes one of Kommersant’s interlocutors in the industry. The effect would be if the marginal price fell to the actual selling price. To do this, according to the interlocutor of Kommersant, it is necessary to reduce the price by $15-20 per barrel, this would lead to a drop in export prices. But so far, in order not to create panic in the market, Western countries are trying to act carefully, he said.

As for lowering the price ceiling for oil, this is logical – formally, the prices for Urals oil, which are now published by Argus, are below the ceiling level, Sergey Kondratyev from the Institute of Energy and Finance notes. He recalls that formally, in accordance with the announced principles for adjusting the price ceiling, its level should not exceed 95% of “market prices”, however, the reduction proposed by the EU is less – the ceiling will still remain above Argus prices. According to the expert, one of the key questions is whether buyers from India and China will comply with the price ceiling. There is a possibility that the “price ceiling” may “break down” with a decrease, and buyers will be ready to pay at a higher price, especially if the situation on the oil market improves.

Dmitry Kozlov