31 Jan 2024 12:36

Novak confident that discount on Russian oil to Brent will decrease; market will calm down

MOSCOW. Jan 31 (Interfax) - Russian Deputy Prime Minister Alexander Novak is confident that the oil market will calm down and the discount on Russian oil to the Brent benchmark will decrease again.

"We have already had two such surges in discount growth, in 2022 and then at the beginning of 2023. This is of course currently associated with the sanctions package imposed at the end of last year. This is a natural market reaction to insure the risks. I am sure that as the chains improve and the market calms down, the discount will decrease," Novak told reporters.

Argus data reviewed by Interfax shows that, for 30 days in January, the discount on Urals oil in the port of Primorsk (FOB) was $18.38 per barrel to Brent compared to $18.22 per barrel in December. The price of Urals in Primorsk in January increased to $61.77 per barrel from $59.6 per barrel in December 2023.

The highest discount last year was $40.05 per barrel (FOB Primorsk) in January, when sanctions on the purchase of Russian oil came into full effect, while the lowest was in September, at $13.71 per barrel, when Russia and Saudi Arabia announced an extension their cuts in production and exports, respectively, until the end of the year amid expectations of an oil deficit in Q4.

In the summer of 2023, the price of Russian oil exceeded the price cap established by the G7 countries, which did not allow their companies to transport Russian oil, and therefore discussions began about lowering the ceiling. However, the G7 countries decided to tighten control over compliance with sanctions and issued appropriate clarifications in the fall and the US Treasury imposed sanctions on several tankers and ship owners in November. In October, the discount was $13.73 per barrel, and in November, it grew to almost $16 per barrel.

Discounts for Urals oil in the port of Novorossiysk are traditionally slightly lower, at $17.9 in January 2024 versus $18 per barrel in December 2023, while the price in January was $62.2/bbl in January versus $59.6/bbl in December. Thus, the average price of Urals for 30 days in January was almost $62 per barrel, which is 3.8% higher than in December, while Brent (North Sea Dated) increased by 3%.

Argus data show that the cost of Russian Urals in Indian ports (DAP West Coast India) in January 2024 increased to $76.36 per barrel from almost $74 per barrel in December, and the discount to Brent decreased slightly from $3.87 per barrel in December to $3.79 per barrel in January.

The price of another grade of Russian oil, ESPO, sold from the eastern port of Kozmino, increased in January to $73.4 per barrel, compared with $72.2 per barrel in December, and the discount decreased from $5/bbl. to $4.46 per barrel in January 2024.

The Urals price for calculating taxes as of January 2024 is selected from the highest of two - Brent with a certain discount ($15 per barrel, set forecast) or the Urals quote in Russian ports + the cost of transport to European ports. The cost of transport is set according to the Federal Antimonopoly Service method (to use Argus data, but the method has not yet been approved), and if it is not available, then $2 per barrel.