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Russia - Why Russian oil prices are hitting multi-year records

Russia (bbabo.net), - Prices for Russian oil Urals on February 7 exceeded $95 per barrel, outperforming the benchmark Brent by $2.5. As a rule, everything happens the other way around, and the Urals brand is traded at a discount of $1-3 to Brent.

Russian oil has not cost more than $90 since 2014. And so seriously Urals quotes exceeded Brent in mid-2020. At that time, this was due to record production cuts under the OPEC+ deal, the brunt of which fell on Saudi Arabia and Russia. Our country reduced production by 2.5 million barrels per day, and the lion's share of the volume fell on the oil used to produce the Urals blend.

This grade is obtained by mixing oil of different characteristics in the pipeline - light, low-sulfur oil from Western Siberia and heavy, high-sulphur oil from the Urals and the Volga region. More than 75% of oil produced in Russia is produced in these regions. As a result, the disappearance from the market of such volumes of Urals sour oil, which is used for the work of many oil refineries (refineries) in Europe and the United States, caused a rise in the price of the Russian brand in June 2020 above Brent by $3. Demand for oil began to rise after the first shock from the coronavirus pandemic, while the volume of reduction remained the same.

This year the situation is a little different. Demand for oil is growing, including due to the gas crisis and high prices for it. Demand for heating oil as heating oil has increased in Europe and Asia. And, for example, in Europe it is made from Urals.

Also, the aggravation of relations between Russia, the United States and NATO has raised fears that oil supplies from our country may be hindered or even stopped. Some buyers have opted to stockpile Russian oil. Growing instability in the Middle East also played a role, where Yemeni rebels who attacked UAE oil infrastructure facilities became more active.

US sanctions against Iran's oil exports, whose oil is similar in characteristics to Urals, make matters worse. Washington, perhaps, would like to lift the current restrictions now, but so far it has not been possible to reach an agreement with Tehran without "losing face".

At the same time, Urals price records themselves do not particularly affect the world market. Most of Russian oil is sold under long-term contracts. Small volumes are sold at exchange prices. Within Russia, monthly averaged data are used to calculate mineral extraction tax (MET). For January, the price is set at $86.38 per barrel. The export duty for the next month is set based on the results of monitoring from the 15th day of the last month to the 14th day of the current month. In 2022, the Russian budget receives funds at the Urals price of $44.2 per barrel, all additional revenues are sent to the National Welfare Fund (NWF).

Russia - Why Russian oil prices are hitting multi-year records