Russian Oil May Be Selling At A Major Discount Ahead Of Price Cap

Key Insights

• Bloomberg reports that Russia’s Urals price dropped to $52 per barrel ahead of the price cap. 
• EU continues negotiations as Poland wants to set an aggressive price cap to cut Russia’s revenues. 
• Oil traders do not believe that the price cap scheme will push too much oil out of the market. 

Does Bloomberg Russian Oil Price Data Reflect The Real Situation In The Market?

While EU continues negotiations on the Russian oil price cap, Russian oil may be selling well below the proposed $65 – $70 range.

According to Bloomberg, the price of Russia’s Urals fell to $52 per barrel at the country’s two western terminals. The price was based on the data provided by Argus Media Ltd. Bloomberg also added that Platts believed that Urals price stood at $52 on Thursday in Primorsk, a key Russian terminal in the Baltic sea.

Meanwhile, Neste estimates that Urals’ discount to Brent oil is $24.4, based on the five-days rolling average.

It is not clear whether Bloomberg’s data reflects the real situation as potential buyers may be unwilling to get into deals before they learn the final decision on the price cap. In addition, some buyers may be willing to use “gray” schemes to purchase Russian oil, hiding its origin.

EU Officials Will Try To Reach Consensus On The Russian Oil Price Cap Deal Today

Yesterday, Russian oil price cap negotiations were postponed as Poland insisted on aggressive limits for the price of Russian oil. At the same time, countries like Greece, which profits from shipping services, wanted to set the cap at the $70 level to avoid losing business.

EU officials do not have much time to get the deal done as the European sanctions on Russian oil will be imposed on December 5.

Judging by the recent price action in the oil markets, traders do not believe that the price cap will be aggressive enough to push Russian oil out of the market.

It should be noted that China’s problems with coronavirus have also impacted the market mood in recent days. If China’s oil demand declines, Russia will be forced to offer its oil at a bigger discount to keep Asian buyers interested, which will be bearish for oil markets.

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