One of Russia’s top oil buyers is bracing for trade trouble as the price of Urals, the country’s main export grade, crosses the $60-a-barrel limit set by Western nations to curb revenues from Moscow
India and China have been the two dominant buyers of Russian crude since the invasion of Ukraine more than a year ago prompted others to shun the OPEC+ producer. However, as the Urals rise above the limit set by the Group of Seven, importers will face greater scrutiny on their purchases.
Officials at three Indian refiners said they are preparing for tougher talks with local banks involved in financing their Russian oil cargoes, including many more requests for evidence verifying the purchase price. The officials spoke on condition of anonymity because they are not authorized to comment publicly.
The price cap was designed to keep Russian oil flowing and prevent a global supply shock, while limiting the Kremlin’s income and its ability to finance the war in Ukraine. Importers cannot use Western services, such as insurance and shipping, if crude is bought above the $60-a-barrel limit. This has led to the emergence of a large fleet of shadow oil tankers to avoid sanctions.
Asian buyers regularly use this flotilla to import crude from Russia and other nations such as Iran. Officials at two Chinese refineries said their purchases of Russian oil in recent months have mostly been made without the use of Western financial, insurance and shipping services.
Different Currencies
According to price information agency Argus Media, Urals topped $60 a barrel on Wednesday at its free loading port. For Asian buyers, there is still some consolation. Although these assessments are referenced by oil traders around the world, they provide a good indicator, but they do not accurately predict the purchase prices that buyers will pay.
Most of the Russian cargoes bought by Asian refiners are on delivery, which takes into account the price of crude oil at the loading port plus shipping and other miscellaneous costs and not FOB, which is used for the limit of price This delivered price is made up of a formula that usually includes a privately negotiated discount to the monthly average of global benchmarks such as Brent or Dubai crude during the load month, which leave room for maneuver on the hour to assess the net worth. subsequent cost of the loads.
An Indian official said purchases from its Urals refinery for loading in July could be priced above the cap, depending on the performance of Brent and other benchmarks for the rest of this month. He said the company may have to consider using different currencies.
Indian refiners have tried using other currencies such as dirhams, rubles and rupees for Russian crude cargoes. More recently, Russian crude oil sellers in India have been increasingly interested in using the yuan.
Disruptions to Russian crude flows to India could hit global oil markets, coinciding with reduced supply from Moscow and Riyadh and an expected tightening of the market. The South Asian nation currently imports almost half of its oil from Russia, with the Urals accounting for the bulk of the barrels. Indian refiners may have to look for more cargoes from West Africa, Abu Dhabi, Saudi Arabia or Iraq if they see a significant impact on their imports.
Not all Russian oil deals in Asia will be disrupted as the Urals rise. A large portion of Russia’s seaborne flows to China is made up of ESPO Blend, a premium grade that is typically priced above $60 per barrel. Because of its consistently high price, exports of the grade from Russian eastern ports are already dependent on the shadow fleet and insurers willing to handle these operations.
Indian and Chinese refiners warned that the final price of most Russian cargoes to be loaded in July, for example, will not be known until the end of the month, leaving many to wait and see. An Indian official said buyers will focus on negotiating bigger discounts to reduce and lower the final FOB cost below $60 a barrel, if Brent or Dubai rise. Benchmarks are the most important pricing component.
–With assistance from Sarah Chen and Sharon Cho.
