Urals oil discount hits three-year low after EU sanctions

RussianUrals oil is currently trading at a minimal discount to benchmark grades since the start of the war in Ukraine  — $11.45 per barrel. This indicates that the new European sanctions are having a weak impact on the market, writesBLOOMBERG

Russian Urals crude has been trading at a minimal discount to benchmark prices since the start of the special operation in Ukraine. This suggests that new European sanctions have not yet had an impact on the market, Bloomberg writes, citing sources.

An oil discount is a price difference between a particular grade of oil and a benchmark (usually Brent) that arises due to differences in oil quality, market conditions, or foreign policy factors.

Urals crude has traded in recent days at an average discount of $11.45 per barrel to North Sea Dated (an Argus quote based on the price of five North Sea crude grades, including Brent). This is the “narrowest” gap in prices since February 2022, the article says.

The discount has decreased despite the 18th package of sanctions against RUSSIA, which the EU adopted on July 18. In particular, the price ceiling for Russian oil was reduced from $60 (effective from 2022) to $47.6 per barrel, and a decision was made to impose a ban on the import of petroleum products produced from Russian crude oil from third countries, with the exception of CANADA, Norway, Switzerland, the UK and the US . In addition, Europe decided to completely ban transactions regarding Nord Stream and Nord Stream 2, including for the provision of goods or services.

The HEAD of European diplomacy, Kaja Kallas, called the new package of sanctions “one of the toughest.” The Kremlin responded by saying that over the past three years, Russia has adapted to life under sanctions, although it considers such unilateral restrictions illegal.

The EU restrictions have not yet come into force. The new price cap is due to come into effect on September 3. Bloomberg's report says that demand for Russian oil in Asia, particularly CHINA, and limited supplies are also helping to narrow the discount.

Buyers of Russian oil "care less about EU sanctions, in contrast to their serious concerns about US restrictions," said Muyu Xu, a senior crude oil analyst at research firm Kpler.

Ronald Smith of Emerging Markets Oil & Gas Consulting Partners LLC added that Europe and the U.S. have a chance to “show that sanctions are not very effective.” He said that stopping Russian exports “will inevitably lead to a sharp increase in oil prices for everyone.”

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