“There will be a shock and a sharp failure in the coming months”

Marcel Salikhov, President of the Institute for Energy and Finance, gave an interview to Business Online about the situation in the oil industry.

-On December 5, an embargo on Russian oil enters. Will the Russian oil paradise end after this?

- It depends on what you mean by paradise. The current situation can hardly be called paradise. When the first sanctions began to be introduced in the spring, everyone had anxious expectations. Even Finance Minister Anton Siluanov said in March that the Finance Ministry expects production to drop by 17 percent. These were very pessimistic expectations both at the government level and at the company level. At the end of the year, in fact, production will decrease minimally - by 1 percent. When compared with the expectations that were, and what is happening in fact, then, of course, everything is more optimistic.

Let's see why this happened. First, the discount mechanism, when Russian oil is sold at a discount, creates strong incentives for buyers. Second, companies were able to quickly organize new markets and buyers. Traditionally, Russian oil was sold through major traders Glencore, Vitol, Trafigura and others. From the point of view of companies, it was a convenient scheme. But now, in fact, we had to quickly reorganize, find new buyers. Now you can not give your product to one or two traders and not worry about the future. In principle, the companies coped well with the situation.

It seems to me that the impact of the price ceiling will be minimal in the short term.

The embargo is a more important story for Russia and companies. All the same, even now significant volumes went to the European market. From December 5, an embargo is introduced. In recent weeks, there has been an export of 800-900 thousand barrels of crude oil per day to Europe. It turns out that it needs to be redirected somewhere. And before that, they had already redirected 1 million barrels from Europe to other markets.

Where can they be redirected?

India has been a major buyer lately. Prior to that, it did not buy Russian oil at all, because it was expensive. India is far away, because there were almost no supplies. Due to the fact that a discount appeared, it became very profitable for Indian refineries to buy Russian oil. They are happy to buy, buy and, apparently, will buy. For Indian refiners, this is a very good business: they buy oil at a good discount, and sell finished products at world prices. There is also talk in the West that India is buying Russian oil and then exporting oil products to Europe.

— What is the minimum price, so as not to go into losses?

- It depends on taxes. It can be assumed that the cost of production, including investments, transportation, for Russia is on average in the range of 20-25 dollars per barrel. Everything else is taxes, which are also tied to the price of oil. The level of taxation is changing. If the price of oil approaches $20, as it was in 2020, then taxes are reset to zero. So there is still money to be made.

- That is, we will not stop the export in any case?

- We think that part of the export will still suffer, something will not be able to completely transfer to other markets. First of all, we are talking about oil products. The same China and India do not really want to buy oil products. Rather, they want to buy crude oil and process it themselves, because they have their own refineries. Also, oil products are more expensive to carry. They are usually transported on small tankers, while crude oil is transported on very large ones. Relatively speaking, it is more profitable to bring a large tanker of crude oil somewhere and process it there than to transport it in small tankers.