EU Agree On $100 Russian Diesel Price Cap To Third Party Countries
Last weekend the EU agreed to support a price cap level of $100 per barrel on Russian diesel sales to third-party countries.
The regional body’s ban on Russian seaborne crude oil products imports, including diesel and naphtha, is scheduled to go into effect yesterday.
Bloomberg reported that the EU’s proposal, submitted last week, called for capping the price of Russian diesel sold to third countries at $100 per barrel for products that trade at a premium and $45 for those that sell at a discount.
Similarly to the price cap on Russian crude, buyers outside the EU would continue to have access to Western insurance and financing for cargoes if they comply with the price cap.
The proposal also included setting a price cap of $45 per barrel for discounted products such as fuel oil, which sources suggest has also been approved.
The idea behind the price caps is to limit Russia’s revenues and at the same time limit their chances of winning the war against Ukraine.
Despite the ban and price cap mechanism that are set to go into effect yesterday, [Sunday], Russia’s energy minister said he saw no reason to reduce the country’s output on petroleum products, nor was it considering a reschedule for its refinery maintenance to make use of possible reduction in Russian demand.
Even as the price cap went into effect yesterday, there is a grace period for cargoes loaded before the cap agreement was made, that would run until April, the report said.
Earlier in the week, Russian diesel prices stood at $90, below the cap. Midweek, Wood MacKenzie predicted that a $100 cap may not have a significant effect on Russian refiners, but could bring its diesel exports down about 200,000 bpd.
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Russia’s Oil Revenues Slumps
Following the grip of the EU/US sanctions against Russia, the country’s budget revenues from oil and gas plunged in January by 46% compared to the same month last year.
The country’s revenues from energy sales – including taxes and customs revenues – reportedly went down last month to the lowest level since August 2020, according to data from its finance ministry compiled by Reuters.
In January 2023, the price of Russia’s flagship Urals grade averaged 42% lower than in the same month of 2022, as its discount to Brent Crude grew wider following the EU embargo and the G7 price cap, which came into effect on December 5.
The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, Russia’s finance ministry said earlier last week.
Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the Russian budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported on Friday, quoting sources.
Russia is believed to be looking at ways to reduce the steep discount on Urals and to stabilize its oil revenues. President Vladimir Putin reportedly ordered the government at January end to submit within a month proposals to change the methodology for calculating the taxes from oil, Kommersant’s sources said.
Finland-based Centre for Research on Energy and Clean Air (CREA) said in a report last month that the EU oil ban and price cap are costing Russia an estimated $174 million (160 million euros) per day due to the fall in shipment volumes and prices for Russian oil.
The revenue losses are expected to rise to $304 million (280 million euros) per day with additional measures that are being implemented as of yesterday [February 5], according to CREA.
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Putin Sees No Need To Cut Oil Output
Despite the effect of the first phase of the sanctions against Russia by the EU and its US allies, and while the threat of the second stanza starred at the country, reports last Friday said the country does not see need to reduce the country’s petroleum products output.
Russian energy minister, Nikolai Shulginov was quoted last Friday saying, Russia “will analyze what the effects of the embargo will be.”
According to him, “So far we have no reason to believe that we will see a sharp reduction in the processing or production of petroleum products,” Russian news agency Interfax quoted Shulginov as saying.
Russia is not considering postponing or rescheduling refinery maintenance because of the EU embargo, either, the energy minister said.
On the side of the EU, the new sanctions, effective yesterday, banned seaborne imports of Russian refined oil products and around 1 million barrels per day (bpd) of Russian diesel, naphtha, and other fuels need to find a home elsewhere if Moscow wants to continue getting money for those products.
More than half of those Russian fuel exports to the EU are diesel. Ahead of the embargo set to kick in on Sunday, Europe continues to be the biggest buyer of Russian diesel, and it has been stocking up on Russian supply in recent months ahead of the ban.
Russia Considers Taxing Oil Firms To Limit Losses
As part of afloat-sailing devices, Russia is reported to be considering taxing its oil firms based on the price of Brent – instead of its flagship grade Urals.
The idea is to limit the fallout on the Russian budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported on Friday, quoting sources.
Russia is looking at ways to reduce the steep discount on Urals and to stabilize the oil revenues.
The price of Urals has slumped to a discount of nearly $40 per barrel to the price of Brent Crude, which reduces Russia’s budget revenues from oil export taxes. Since the start of the EU embargo on crude oil imports from Russia and the G7 price cap, the per-barrel crude export duty for the Russian state has shrunk due to the plunge in the price of the Urals grade.
Urals crude traded at $49.48 per barrel in January, with rising transportation costs compounding a discount that has seen the country’s flagship crude price plunge year over year.
The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, Russia’s finance ministry said earlier this week.
The lower the price of Urals is, the lower the export duty on crude and petroleum products is, thus reducing revenues for the Russian budget.
According to Kommersant, seeing a threat to the most important budget revenue stream – oil, Russian authorities are now considering amendments in the tax legislation. The leading idea is to tie the calculation of the export duty to the price of Brent instead of Urals.
The price cap hasn’t impacted materially Russia’s crude oil export volumes, yet, but it has impacted revenues, due to the hefty discount of Urals to Brent. Per Russian finance ministry’s data cited by Kommersant, the tax collected from companies fell by 10% in December compared to November, to $6.75 billion (474.8 billion Russian rubles).