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The Russian oil market, which has been under a European embargo since December, met 2023 with a new collapse in prices.
The cost of Urals, the main brand of Russian oil companies, which accounts for almost two-thirds of exports, on Friday, January 6, fell below $40 per barrel.
Shipments shipped from the port of Primorsk in the Baltic Sea cost $38.7 per barrel – a record low since the spring of 2020, Bloomberg reports citing Argus pricing agency data.
Since the beginning of the year, Urals has fallen in price by about 10%. Its current quotes are already twice as low as Brent ($78.57 on the same date) and a third below the price ceiling that the G7 countries set at $60 per barrel.
Urals prices began to “rush” to the bottom in November, when it became known that the West was preparing a new portion of oil sanctions. Since then, Russian oil has almost halved in price, while Brent has fallen only 18%.
Of the dozens of countries that bought barrels in Russia, only a few customers remained by the beginning of 2023. In Europe, Russian oil continues to be imported by Bulgaria, which received an “indulgence” under the embrago. Turkey, while not officially joining the sanctions, cut imports by 86% in December after the country’s largest refinery, STAR, halted purchases from Russia for fear of secondary sanctions.
The pool of large buyers of Russian barrels is limited to India and China. But they are not enough to compensate for European demand. In December, Russia lost 20% of its oil exports. In the first week of sanctions, exports almost halved to 1.6 million barrels per day, and by the end of the month it recovered to 2.6 million barrels per day, but never returned to pre-sanction levels.
Urals prices around $40 per barrel will be a “real disaster” for the Russian budget, Evgeny Suvorov, an economist at Centrocredit Bank, is pessimistic. The Ministry of Finance has pledged oil at $70 to the Treasury project, and in order for all revenues to cover expenses, a barrel more expensive than $100 is needed, Alfa-Bank estimates.
In December, the average price of Urals, according to the Ministry of Finance, was $50.5 per barrel. And if this is a new reality, then the budget will receive less than 2 trillion rubles, Suvorov estimates. With prices near $40, the government will have to carry out budget consolidation, he believes: spending – about 30 trillion rubles – will have to survive the sequestration.
A weaker exchange rate of the ruble may partly compensate for budget losses, but there is additional stress – from February 5, after oil, oil products will also fall under the European embargo. And it will be much more difficult to redirect them to Asia, even with discounts, warns Natalia Orlova, chief economist at Alfa-Bank.