Urals export price exceeded $75/bbl

The weighted average export price of Russian Urals oil in August 2023 increased by $9.3 compared to July this year to $73.71/barrel. And in the first week of September it surpassed $75 per barrel. This is stated in a review dated September 13 from the International Energy Agency (IEA), which refers to data from the Argus pricing agency. At the same time, the price ceiling for Russian crude oil, at which companies from the EU and the US are allowed to transport and insure it, remains at $60/barrel.

“Russian oil prices were relatively stable during the month at around $70/barrel, while in the first week of September they exceeded $75/barrel. The decline in seaborne Russian oil exports since May has mainly affected Urals, the largest export grade, exacerbating the shortage of sour crude on the global market,” the IEA said in its review.

On September 5, Russia announced that the reduction in oil exports by 300,000 barrels per day would be extended until the end of 2023. Deputy Prime Minister Alexander Novak, who oversees the fuel and energy complex, explained then that the reduction volumes would be adjusted monthly “depending on the situation on the global oil market.” From March of this year until the end of 2024, the Russian Federation is also voluntarily reducing oil production by 500,000 barrels per day. In addition, in August Russia decided to reduce exports by 500,000 barrels per day, in September – by 300,000 barrels. This reduction does not apply to agreements under the OPEC+ deal.

Eight more OPEC+ countries also joined the voluntary reduction in oil production, including Russia’s main partner Saudi Arabia. The Kingdom reduced oil production by 500,000 barrels per day from May 1, and by another 1 million barrels from July until the end of the year.

According to the ICE exchange, the price of a barrel of Brent was approaching $93 on September 13, the highest since November 2022.

The IEA review also notes that the discount on Urals relative to the price of North Sea Dated (similar to Brent) in August decreased by $3 compared to July to $12.53 per barrel. The cost of another Russian grade of oil – ESPO (light oil transported through the Eastern Siberia – Pacific Ocean pipeline) in August increased by $7.28 compared to July and reached $78.52 per barrel. on a FOB basis (“loaded on board”) in the port of Kozmino. The discount for this grade to North Sea Dated decreased less than for Urals – by $0.9 to $7.72/barrel.

Prices for Urals on a DAP (“delivery to destination”) basis at Indian ports reached $80.5/bbl in August. (+$7.7 compared to July), and at the beginning of September – $85.7/barrel. At the same time, the discount on Russian oil to the Dubai grade was slightly more than $5/barrel in August, and in September it decreased to $4.4/barrel. But the rise in price of Urals in Indian ports has stimulated local buyers to look for alternative suppliers in the Middle East. As a result, shipments from Russia in August decreased by 300,000 barrels per day compared to the level of April-May and amounted to 1.8 million barrels per day.

After the start of the SVO in Ukraine and the announcement of the EU embargo on seaborne oil supplies from Russia, domestic companies began to redirect supplies from Europe to Asia. India has become one of the largest buyers. Previously, Novak said that in 2022, supplies to this country increased 19 times over the year and amounted to 41 million tons.

In August, Russia’s revenues from the export of oil and petroleum products reached $17.1 billion for the first time since October 2022, the IEA calculated. This came as total supply volumes fell by 150,000 bbl/d to 7.2 million bbl/d compared to July, but a 14% rise in the weighted average price supported the country’s revenues.

The rise in prices for Urals was a consequence of the general rally in the oil market, explains Kirill Rodionov, an expert at the Institute for the Development of Technologies of the Fuel and Energy Complex. Oil prices are rising due to a shortage of raw materials, he notes. According to the US Energy Information Administration, in the third quarter, global oil demand will exceed supply by 580,000 barrels per day. At the same time, in the first quarter, supply exceeded demand by 1.13 million barrels per day. The reduction in oil exports from Russia is also one of the factors maintaining high prices on the market, Rodionov adds.

According to Finam FG analyst Sergei Kaufman, the minimum discount to Brent that Russian oil producers can count on is $10–15/barrel. “The long transport distance and the need to provide discounts so that Indian buyers are interested in Russian oil limit further potential for price increases,” he explains. At the same time, in his opinion, it will be difficult for Indian refineries to find alternative suppliers willing to provide a discount.