Russian Oil Remains Cheap | Rigzone

Russia’s flagship crude blend is still trading at deep discounts despite a global oil rally driven by the growing escalation in the Middle East. 

The average discount on Urals oil exported from Russia’s western ports widened slightly to about $30.9 a barrel below the global Dated Brent benchmark on Tuesday, the widest gap since April 2023, data from Argus Media showed. 

While prices are rallying with the conflict that’s disrupting oil flows from the Persian Gulf, the gap shows buyers continue to require deep incentives to take Russian barrels. 

Russia, the world’s top crude producer after the US and Saudi Arabia, has had to offer higher discounts to a shrinking pool of buyers as the full-scale invasion of Ukraine triggered multiple western sanctions over the past four years. The Kremlin’s oil-tax revenues have been shrinking, contributing to a widening budget deficit and growing economic woes in the nation at war.

US and Israeli strikes on Iran over the weekend triggered a spiraling regional conflict, and multiple attacks on vessels have effectively closed off the Strait of Hormuz, a key chokepoint for about a fifth of the world’s crude shipments. Brent is trading near $82 a barrel, after rallying 12% over the past two days for the biggest gain since 2020, while West Texas Intermediate traded near $75.

As Russian barrels don’t need to cross the Strait of Hormuz to reach key buyers in India and China, there’s some expectation the discounts could narrow if the disruptions continue. President Donald Trump said the US would offer insurance and even naval escorts to secure energy flows through the waterway, but the shipping industry sees it — at best — as only a partial solution to a historic crisis.

Russia is ready to increase oil exports to India and China if the two nations express interest in additional barrels, Deputy Prime Minister Alexander Novak said, according to Russian media. Earlier this year, India cut back its purchases of Russian crude in response to US pressure, and has kept the imports at a minimum. Now, the giant energy-consuming nation may turn back to Russian cargoes, according to people familiar with the discussions.

To be sure, the Mideast conflict has supported the pricing of Russian barrels in nominal terms. Urals at the Baltic Sea port of Primorsk traded at $54.82 a barrel on Tuesday, while the grade at Novorossiysk in the Black Sea was prices at $52.97, the Argus data show. That’s a significant jump compared to the end of last week, when Urals crude traded at around $40 a barrel.  

Russia’s government based the nation’s budget for this year at an average Urals price of $59 a barrel, and with current levels close, it may provide some relief to the Kremlin’s coffers this month. 

By the time Urals shipments reach India, the discount to Brent shrinks to just over $12, unchanged from last week’s levels, according to Argus Media. The price at Indian ports jumped to more that $72 a barrel, the data showed.

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