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Russian Oil Sells At Huge Discounts

Russia’s flagship crude grade, which was sold mostly to Europe before the Russian invasion of Ukraine, is still selling, but predominantly in Asia, and at a huge discount to Dated Brent.

The price of the key Russian export grade, Urals, averaged $73.24 per barrel between the middle of April and the middle of May, according to data from the Russian Finance Ministry cited by Bloomberg. The price of Urals was nearly 32 percent lower than the average Brent Crude prompt futures price during the same period, per Bloomberg’s estimates.

Urals has always sold at a discount to Brent, but the spread widened to record highs following the Russian invasion of Ukraine. The discount of Urals was fewer than $2 a barrel to Brent at the beginning of this year, only to widen to more than $5 per barrel on the day Russia invaded Ukraine.

Over the following weeks and months, the discount further grew as many buyers, traders, refiners, and insurers started avoiding Russian crude to comply with financial sanctions against Russia and its central bank and oil firms, while also expecting a ban on Russian imports into the EU.

As of May 31, the discount of Urals to Brent stood at $34.45 per barrel. Front-month Brent Crude futures on the same day traded at over $124 in the late morning EST.

The EU ban—a partial one—was agreed upon late on Monday. Since the embargo concerns seaborne imports of Russian oil, the differential of Urals to Brent could widen further as Russia will now have to rely on buyers in Asia such as India and China to move its crude by sea.

Unlike European buyers, China and India aren’t shying away from Russian crude, although some Chinese state giants haven’t ramped up imports of spot cargoes from Russia despite the steep discounts at which Russian oil is selling.

In India, cheap Russian crude oil is attracting the price-sensitive buyers to the point that Russia became the fourth largest oil supplier to India in April, moving up from the 10th place in March, according to shipment-tracking data compiled by Reuters. China, for its part, registered in April its first annual increase in crude oil imports since January as shipments rebounded on the back of higher arrivals from Russia, analysts say.   

By Tsvetana Paraskova for Oilprice.com

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  • Steve Hill on May 31 2022 said:
    Europe is effectively subsidising the oil price given to Asian markets. Perhaps the some form of trade tariffs should be levied to address this subsidy.

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