Urals oil prices in Russian ports hold $2/bbl below price cap amid weak Brent, calculations show

Urals oil prices in Russian ports hold $2/bbl below price cap amid weak Brent, calculations show

Urals oil prices in Russian ports have been trading at a discount of around $2 per barrel below the Western price cap, according to recent data. This discount has been maintained despite the overall tightening of the global oil market and the increasing demand for crude oil. The price cap, initially set at $60 per barrel, has been a significant factor in keeping Russian oil sales afloat despite Western sanctions.

The discount on Urals crude for delivery to Indian ports in August has narrowed to its tightest levels since 2022, with spot discounts averaging $1.70-2 per barrel to dated Brent on a delivery ex-ship (DES) basis [1]. This narrow discount reflects the high demand for Urals oil in India and Turkey, the two largest buyers of the grade, and the reduced availability of spot Russian barrels. Additionally, the upcoming maintenance shutdown at the Sakhalin-1 project is expected to further reduce Russian oil supply in August [1].

The European Commission (EC) is set to propose a floating price cap on Russian oil this week as part of a new sanctions package. The EC initially proposed lowering the G7 price cap from $60 to $45 per barrel in June but failed to secure support from the United States. The EU is now moving forward independently to adjust the price cap based on changes in global energy prices [2]. Despite the proposed price cap, Urals oil prices have remained below the $60 per barrel threshold, allowing Western companies to provide shipping and insurance services for the barrels [1].

The narrowing discount on Urals oil has pushed Indian refiners to consider alternative oil grades such as United Arab Emirates’ Murban or U.S. West Texas Intermediate (WTI) [1]. The high demand for Urals oil and the reduced availability of spot barrels have led to a supply squeeze, with several Indian refiners unable to secure Urals cargoes for August delivery [1]. India is exploring the construction of three new strategic oil reserves to strengthen its energy security [1].

The current oil market outlook remains uncertain, with prices holding steady despite a weaker market outlook and potential further sanctions on Russia [3]. The International Energy Agency (IEA) has boosted its supply growth forecast for this year while trimming its demand growth outlook. However, peak summer refinery runs are keeping the market tight, with Saudi Arabia planning to ship about 51 million barrels of crude oil to China in August [3].

In conclusion, Urals oil prices in Russian ports continue to trade at a discount below the Western price cap, reflecting the high demand and reduced supply of the grade. The proposed floating price cap by the European Commission and the potential for further sanctions on Russia may further impact the oil market dynamics.

References:
[1] https://www.hellenicshippingnews.com/discount-on-russian-urals-oil-shipped-to-india-is-smallest-since-2022-traders-say/
[2] https://unn.ua/en/news/eu-proposes-floating-price-cap-on-russian-oil-reuters
[3] https://www.hellenicshippingnews.com/oil-prices-steady-as-investors-weigh-duller-market-outlook-and-tariffs-impact/