Russia’s Oil Revenues Tank Despite Historic OPEC Deal

Due to the oil price crash and the nature of Russia’s tax system, the budget of the Russian Federation is set to suffer from low oil revenues despite Sunday’s OPEC+ agreement for a massive collective production cut of nearly 10 million bpd.  

Due to the monthly recalculation of Russia’s oil export duty based on the average price of its key export grade, Urals, for the previous month, Russia’s oil export duty in May is about to be 87 percent lower than in April, Bloomberg reported on Thursday.

According to Bloomberg estimates on data from the Russian finance ministry, Moscow would be getting less than US$1 out of each barrel of Urals it exports.

This ultra-low oil export duty is the lowest in 18 years—since 2002--when the export duty mechanism was introduced, a finance ministry official told Bloomberg.

The price of Urals averaged around US$19 a barrel between the middle of March and the middle of April, the period for which data is collected to recalculate the export duty for oil in the next one-month period, according to data from the Russian finance ministry.

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On the face of it, Russia agreed to much deeper cuts in Sunday’s deal than those it rejected in early March when Russia’s refusal to back a collective 1.5 million bpd OPEC+ cut led to the one-month spat and the oil price war between Saudi Arabia and Russia. In reality, cheating with quotas has been an art in Russia since the start of the OPEC+ alliance more than three years ago.   

In the new deal, which lacks clear mechanisms for compliance observance, Russia’s target for oil production is 8.5 million bpd in May and June, Vitaly Yermakov and James Henderson of the Oxford Institute for Energy Studies wrote in a paper earlier this week. However, it’s not clear if condensate is included, which changes Russia’s overall cut. Including condensate, Russia’s share of the cuts should be 2.8 million bpd, without condensate, the cut would be around 2 million bpd, according to the authors.

“[I]t will be important to monitor compliance, especially as there is only a three-week period before around 20% of Russian oil production needs to be temporarily shut down. We suspect that this may be a task that is very difficult to achieve but would not underestimate the ingenuity of the Russian oil industry and the Kremlin to at least make a case for compliance by May,” they said.

By Tsvetana Paraskova for Oilprice.com

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