/ world today news/ A serious reduction in discounts for Russian oil is reported. The discount of 25-30 dollars is in the past, now the difference with the world price is only 4 dollars, Indian media reports. Moreover, Indian refiners are worried that even this discount could be lost. Why is the sanction discount for Russian oil disappearing and will it help to add revenue to the Russian budget in the second half of the year?
The discount to Russian oil has fallen 87% since peaking at $25-30 and is now just 4 to Indian refiners. This is written by the Indian edition “Times of India”, referring to sources from the industry. Sellers are waiving delivery rates to close the gap with benchmark Brent crude and bypass the Western price ceiling.
“Fragmented purchases of refineries, especially state-owned enterprises, are used by sellers of Russian oil. They charge $11-19 for shipping from Baltic or Black Sea ports, which is almost double the norm, and the price of oil is $1-2 below the price ceiling,” a source involved in the auction told the publication.
Indian buyers may soon lose the discounts entirely if oil prices continue to fall and narrow the gap to the $60 price ceiling in the West, he said.
Why has Russian oil cuts fallen so sharply and will this help the Russian budget boost oil export earnings in the second half of the year?
“The main reason for the reduction in the discount, which has been observed in recent months, is related to the decrease in world oil prices. The second circumstance is the reduction of tanker freight rates, our oil is sold at a price below the ceiling of 60 dollars per barrel, so the competition between carriers for Russian oil has intensified. Now, Greek and other European ship owners are not afraid of being penalized by transporting Russian oil above the price ceiling. Therefore, there are enough tankers on the market ready to transport Russian oil. Since there is no shortage of tankers, then the price of the cargo is reduced,” says Alexey Gromov, director of energy at the Institute of Energy and Finance.
In other words, Russian oil can now be transported by tankers not only from the shadow fleet, but also by any tankers, without fear of being sanctioned, since this is not a violation of the price ceiling.
Another important point: now there is no need to use ice-class tankers to transport raw materials, which also reduces the associated logistics costs, the expert adds.
The fourth important circumstance is that Saudi Arabia is raising the price of its export oil and becoming a premium seller in the oil market.
For India, the cost of energy resources is important, so cheaper Russian oil is a priority for it. Russian oil now accounts for about 40% of India’s total imports, while before the start of the military conflict in Ukraine its share was less than 2%, notes the Indian publication. India has become the largest buyer of Russian oil delivered by sea, overtaking even China (if you don’t count pipeline deliveries). India’s oil imports from Russia in FY 2022-23 increased 14-fold from $2.2 billion to $31.02 billion year-on-year.
In theory, the reduction of the rebate should lead to an increase in the budget’s revenue from oil exports. According to the Ministry of Finance, in the first half of this year, budget revenues from oil and gas decreased by 47%, to 3.38 trillion rubles.
Because the export of Russian hydrocarbons to countries unfriendly to the West fell 6.6 times – from 22 to 3.3 billion dollars. This is a record low for the last 20 years. Now 96% of our exports go to India, China, Turkey and Brazil. And in this direction, the export of Russian hydrocarbons doubled – from 7.6 to 14.9 billion dollars.
“There will certainly be a positive effect on the budget from the reduction of the discount for Russian oil. But this will not be the so-called “wow effect”, which is possible only with a more significant increase in oil prices. In fact, the discount of 25-30 dollars per barrel was last year, when oil was expensive and they had to be redirected to Asia , which increased the logistics costs. The real discount has fallen along with the global prices. Back in April and May, we fixed the discount at the level of 8-9 dollars, and now it has come down to 4. This is the real discount that we provide to customers,” says According to Gromov, there is no reason to hope that in the second half of the year Russia will be able to significantly increase its export earnings.
In addition, there are problems with mutual payments for the supply of Russian oil. “Last year we started trading with India in rupees and then we realized that we could not convert those rupees into goods in adequate quantities. And if the rupees are converted into other currencies, then we lose because of the volatility of the Indian rupee, which sometimes reaches 20% during the year. Information has emerged that we have agreed to sell oil to India for yuan, and it will take time to understand how this will affect budget revenues,” Gromov claimed.
According to him, it will be possible to strategically solve the problem of replenishing the budget with oil and gas revenues only when Russia, in partnership with key allies – China, India and other countries, can create a financial and economic system for trading Russian oil independently from the West. Then Russia will be able to operate regardless of the so-called world oil market, world oil prices, caps and sanctions.
“Trading in rupees, rubles, yuan is an example of tactical solutions to problems here and now within the framework of the sanctions that Russia is under. However, it is necessary to create a system of financial transactions independent of Western banks. The long-term goal is to move to digital currencies that are independent of the world’s reserve currencies. These are both the digital ruble and the digital yuan at the same time,” says the director of the energy division of the Institute of Energy and Finance.
The second necessary condition for the creation of a Russian oil trade independent of the West is the creation of its own tanker fleet and a shadow tanker fleet that is ready to transport our oil. According to Gromov, Russia is already close to solving this problem.
The third condition is insurance for the transportation of Russian oil. “Practically all liquid cargo in Russia is now insured by Russian insurers and reinsured in Russia. But the depth of insurance coverage is insufficient. Insurance coverage may only be sufficient for a few incidents related to accidents and spills of our oil. Therefore, it is necessary to create alliances of insurers with the Indians and the Chinese, which is also being done. There is a problem here with the fact that the state-owned Indian and Chinese insurance companies have a minority share of Western shareholders. However, this is not a critical dependency and is also solvable,” says Gromov.
The fourth condition is to create and test our own system of price indicators within the framework of the St. Petersburg Stock Exchange. In the future, the price of Russian oil should be formed on the basis of demand and supply only for itself, without reference to world prices.
“This is a strategic path for the development of the Russian oil industry, which, of course, cannot be solved in one or two years. This takes time – three to five years or more. Meanwhile, we are forced to make tactical decisions, which may or may not be as successful for us as we expected,” says Alexey Gromov.
The main danger now is a further fall in global oil prices below $75 per barrel.
“If oil does not heed the calls of Saudi Arabia and OPEC+ to stay in the current corridor of 75-80 dollars per barrel, but goes down, then unfriendly countries will have a huge temptation to lower the price ceiling for us and this will reduce revenues of the country from oil and gas,” said Alexei Gromov.
That is why Russia has already agreed to cut production by 500 thousand barrels and is ready to cut oil exports by half a million barrels from August, supporting the extension of restrictions from Saudi Arabia itself.
“It is in our interest to maintain the current status quo of the market, so that the price of oil remains in the corridor of 75-80 dollars per barrel, until we are ready to completely break the financial and economic chains that connect oil exports to the Western economy” , concludes the interlocutor.
Translation: V. Sergeev
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