The Western price “ceiling” does not prevent Russia from increasing oil revenues: what is the paradox

Barrel prices may reach $100

The growing sanctions pressure does not prevent Russia from increasing its oil export revenues. As the Western news portal Business Insider reports, citing data from the International Energy Agency (IEA), in August, foreign sales of “black gold” brought the country more than $17 billion, an increase of almost $2 billion compared to the previous month. High world prices compensate for the fall in domestic supplies of raw materials abroad, which, taking into account the reduction in discounts on the Urals export brand, allows Russian companies to receive additional profits.

Since the end of August, global Brent prices have risen by about 15%, to $95 per barrel. Stably high prices continue to be maintained by the decision of the largest OPEC+ participants (including Russia) to voluntarily reduce production by the end of the year in the amount of about 2 million barrels per day. In turn, Urals has risen in price by almost 10% and now the cost of the Russian grade, according to calculations by the Ministry of Finance of the Russian Federation, exceeds $77 per barrel. The main reason for the increase in prices for our raw materials was the reduction in the discount provided to foreign buyers on Urals from $35-40 to $11.5 per barrel. Moreover, quotations for the domestic mixture are now significantly higher than the restrictive threshold set by Western states for the export of raw materials from Russia: $60 per barrel.

Business Insider emphasizes that rising oil revenues “will likely give Russia a much-needed economic boost.” The first signs of an improvement in the financial situation are evident: in August, the federal budget was executed with a surplus for the first time since the beginning of the year, which allowed the Ministry of Economic Development to more than double the forecast for Russian GDP growth this year – from the previously expected 1.2% to 2.8%.

Fundamental market trends affecting the price environment for oil are so far in favor of Russia. Due to the reduction of their capacities by the largest producers, the total production of liquid hydrocarbons risks falling to a minimum in the last 5-7 years, and the global “black gold” market in the fourth quarter of this year, according to IEA forecasts, will experience a supply shortage of more than 1 million barrels per day. The increase in demand will be fueled by the acceleration of the pace of economic recovery in China: according to the National Bureau of Statistics of the People’s Republic of China, in August, industrial production in the Middle Kingdom increased by 4.5%, retail sales by 7%, and investment in fixed assets by 3.2%.

Rising world energy prices, a declining discount on Urals, as well as falling costs of freight and insurance for oil-carrying vehicles, according to Freedom Finance Global analyst Vladimir Chernov, allowed Russia’s export revenues to soar by about 12%. “Reducing our country’s raw material income was the main goal of the sanctions imposed against Moscow,” the expert notes. “Russian successes, which the Western business news portal focuses on, citing data from the Western agency, the IEA, greatly irritate local politicians.”

In addition to supporting oil prices, which everyone expects from the next “Chinese economic miracle,” the United States, which is now clearly not experiencing the most prosperous financial period, can contribute to strengthening hydrocarbon prices. America, which has increased the size of its national debt by $10 trillion in recent years, is clearly not interested in increasing the price of domestic fuel tariffs: the population will have to save on travel, which will negatively affect retail sales, the credit sector, and in the future – the volume of industrial production as a whole. “Nevertheless, the United States was recently forced to increase purchases of raw materials to replenish the strategic reserve,” says Dmitry Alexandrov, head of the analytical research department of IVA Partners. “If the United States continues and intensifies transactions for the acquisition of energy resources, then with the easing of American monetary policy, at the beginning of next year, a barrel of Brent is quite capable of gaining a foothold above the $100 mark.” However, as the expert believes, even despite the existing excess of demand for petroleum products over supply, one should not count on long-term sustainable growth of raw materials – the situation in various regions of the world is subject to serious and constant changes, and no one has lifted the sanctions pressure on Russia.