The price of Russian oil — included, among other things, in the national budget — by the end of 2022 was no longer empirically set even approximately. Official data from the Ministry of Finance, taken from the pricing agency Argus, give extremely negative numbers. They are noticeably lower than even the ceiling on oil prices set by the US and the EU. At the same time, figures taken in Asian ports show a completely different picture – however, without taking into account the cost of freight and insurance. The truth is somewhere in the middle, according to experts interviewed by Izvestia, but it is now incredibly difficult to establish an exact average price for oil supplied from Russia. More details – in the material.
An equation with two unknowns
According to the data of the Ministry of Finance, which it published at the beginning of the month, the price of oil of the Russian brand Urals in January 2023 was at the level of $49.42 per barrel. Similar measurements are provided by Argus, which regularly shows prices for Russian oil at $35-40 per barrel. The problem with these measurements is that they track quotes in Europe’s largest port of Rotterdam, as well as in Mediterranean ports. But because of the embargo on Russian oil and the price ceiling, these figures do not make much sense, since real deliveries are not made.
Photo: Izvestiya/Sergey Konkov
In early February, for example, Russia’s total offshore crude oil exports stood at 3.5 million barrels per day, about the same as a year ago, before the NWO and sanctions were imposed. But its distribution was completely different. If in February 2022, about half of Russian “offshore” oil ended up in Northern Europe (the same Rotterdam), then in February 2023 this figure was close to zero. On the contrary, if Asia a year ago received less than 40% of oil by sea, now it is under 80% (about 2.5 million barrels per day). It should be noted that in February almost 10% of oil from Russia was sent by sea to an unknown destination.
Be that as it may, but the data provided by the Platts agency, having collected information in Asian ports, give a completely different picture of prices. In China, in the fourth quarter, the average import price of Russian oil was $86 per barrel, and in December it was $81. In India, it reached $87 in the last quarter of 2022 and just over $80 in December. True, all these prices already include freight, insurance and other transport-related costs.
Material discrepancies
Thus, one gets the impression that the discount of Urals to Brent (according to Argus’ estimates, reaching almost $30-35 per barrel) is significantly less in the case of Asian ports. But how much does oil from Russia really cost now?
According to Finam FG analyst Alexander Potavin, Urals oil has traditionally been oriented towards Europe, which in December imposed sanctions on Russian raw materials.
- At the same time, at the end of January, Far Eastern grades of Russian oil grew in price: Sokol (feedstock from the Sakhalin-1 project) was sold at $80 per barrel, and ESPO oil (feedstock from the East Siberia-Pacific Ocean oil pipeline) was traded at around $75 per barrel . Last year, Transneft increased the oil transshipment capacity at the port of Kozmino (the end point of the ESPO oil pipeline) by 12 million tons to 42 million, and today it is fully loaded. The increased levels of oil prices in the Far Eastern ports were due to an increase in demand for raw materials in China, which eased coronavirus restrictions in early January, the expert notes.
Photo: Izvestia/Alexander Polegenko
He added that there is confusion in the current situation. It is not clear which oil price was meant: CIF or FOB (in the first case, the freight and insurance are covered by the seller, in the second, by the buyer). For example, FOB ESPO (oil through a pipe to China) continues to trade without a significant discount to the price of Brent.
As President of the Institute of Energy and Finance Marcel Salikhov noted, there are several different factors that affect this discrepancy.
— The standard Argus quote, which is usually used, is the quote in European ports — Rotterdam (Urals NWE) or Augusta (Urals MED). Under current conditions, this is an estimated quote, since after the embargo is introduced, Russian oil is not traded in EU ports. The Argus quote in the Russian port (FOB Novorossiysk) is currently $45-46 per barrel. However, this quote does not include shipping costs to the buyer. According to our estimates, the current cost of freight from Novorossiysk to India is $10-12 per barrel, to China (from Novorossiysk) – $17-20 per barrel. This cost should be added to the quote in the Russian port, he notes.
According to Salikhov, it is not entirely correct to compare the average cost of Russian oil imports by China with the Urals quote.
- China mainly imports another variety – ESPO, which is supplied via the ESPO. It differs from the Urals in specification and traditionally trades at a premium. In November 2022, the average ESPO price (on FOB terms, that is, in the Russian port of Kozmino) was $83.4 per barrel, in December it was $75. Current values are also around $75 per barrel. Therefore, it is quite logical that Chinese customs statistics fix the cost of imports from Russia at $80 per barrel. In itself, this indicates that there is a manipulation of the Urals quote.
Photo: TASS / Egor Aleev
The expert concluded that the spread of Urals to Brent (now it is about $32 per barrel), which is usually guided by, does not reflect the actual discount at which Russian oil is sold. The actual size of the discount is much less, but it is still there, the source of Izvestia believes.
This adds a headache not only to analysts, but also to the government. State bodies will have to collect taxes and form a budget, without really knowing how much the main export commodity in Russia costs. A move away from Argus quotes is being explored, but it is not clear what will replace them. In a situation of this partial blindness, the government is thinking about taking a special one-time windfall tax from companies, apparently not fully believing in a fair game with prices on their part. Any other way to solve the problem without creating a national price agency, which will give the most realistic and unbiased picture of the situation on the markets, is not yet possible.
