Russia has been trying to create an exclusive futures market for its Urals grade crude, but the initiative faces opposition from trading houses and a lack of interest from foreign buyers, who need to be onboard with the effort, according to a new report by Reuters.
Moscow began the initiative back in November, when it founded a futures contract named URL-E for its flagship grade. Sources say the tax structure and clearing processes for the new contract have not been thought through, creating doubt over the program's feasibility.
President Vladimir Putin established the futures contract model as a way to combat the price spread between Urals crude and the Brent global benchmark. The new instruments closed 3,200 deals in the first six months of 2017, according to figures from the St. Petersburg International Mercantile Exchange.
But SPIMEX chief Alexis Rybnikov has aimed for 10,000 deals in the first 18 months, back when the contract was officially launched. So far none of the closed deals have resulted in physical deliveries, and foreigners are slow to participate.
"Why would foreigners join the trading? This is the wrong time and the wrong place for that," one anonymous source said. European traders find it easier to buy oil straight from producers, who offer discounts at fixed volume purchases.
Regarding the regulatory confusion, SPIMEX says its on its way to developing a clear taxation and customs policy for Urals crude bought and sold through the new contracts.
"At the moment, the exchange, jointly with the relevant bodies of the federal authorities, is working on settlement of some practical regulatory and technical issues," one SPIMEX spokesman told Reuters.
Russia pledged to cut 300,000 barrels per day of production last November, when it joined OPEC in an output reduction deal that took 1.8 million bpd offline globally.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More