Urals' Discount in Russian ports decreased to the lowest in a year

Mikhail Zhuravlev, senior expert at the Economic Department of the Institute for Energy and Finance, commented to RBC about discounts on Urals.

According to Mikhail Zhuravlev, current discounts in Russian ports are near the possible lows this year.

"August is traditionally considered a dead season for freight, so the cost of sea transportation is at a minimum. For example, the Aframax tanker freight (100 thousand tons) from the Baltic to Western India currently amounts to $6.3 per barrel, to Northern China — $8.8 per barrel. Low freight rates are associated with seasonal growth in domestic refining in Russia and a drop in oil exports. Plus, restrictions are imposed on OPEC+ oil production," the expert explains.

However, in September and early October, freight rates are expected to increase due to scheduled repairs at refineries. The volume of oil available for export will increase during this period. So, by the end of the year, freight rates may increase by $ 4-6 per barrel, therefore, the discount on FOB will increase by a similar value, up to $16-18 per barrel, Zhuravlev calculates.

"Moreover, the threat of a global recession and the fall in world oil prices signal a slowdown in global demand for raw materials. In such circumstances, Russian oil companies will probably have to increase the discount on CIF, which will increase the discount on FOB," he believes.

In general, CIF discounts will continue to be in the range of $3-7 per barrel, the expert believes. In his opinion, the dynamics of discounts on FOB does not affect the CIF discount in any way, but affects the margin of exporters, reducing it with growth.