This means that the Russian Urals crude is trading at a premium to the European benchmark Brent.
The premium is $1.55 per barrel in North-Western Europe and $2.55 – in the Mediterranean.
Argus names competition as the reason of Urals reaching such a high price. After the United States imposed sanctions against Venezuelan oil, American refineries began to willingly buy Russian heavy oil, very similar to the one exported by the Venezuelan PDVSA. In addition, demand for Russian oil in Asia is growing.
Russia seeks to comply with the terms of the new OPEC + agreement to reduce oil production in force since May 2020.
Under the agreement, Russia in May-June, and after extending the 1st stage of restrictions for a month, also in July 2020, should reduce production by 2.5 million barrels per day from the base mark of 11 million barrels day, i.e. down to 8.5 million barrels per day.
In May 2020, Russia fulfilled its obligations almost completely – by 96%, and in June 2020 promised to ensure 100% compliance with the terms of the agreement.
These restrictions on oil production significantly affect export volumes. The crude oil market crisis reveals the real value of Urals. In accordance with the laws of the market, value is determined by demand. Accordingly, the wider the demand for a particular product, the higher its price.
This is exactly the case with Russian oil. Europe’s refineries are focused under it, just as the US refineries are oriented to the heavy oil of Venezuela and Canada.
Paradoxically, two types of light oil with a very low level (no more than 1%) of consumption in the world: WTI and Brent are the benchmark for the world oil price.
But one oil is produced in the USA, and the other in England.
Another Russian export-grade crude oil ESPO also trades at a premium.
ESPO shipments, out of the port of Kozmino for August futures, on June 22nd were trading at a premium of $3.73 per barrel compared to similar contracts in Dubai, or $1.33 per barrel more expensive than the last July cargo.
Support for prices for light varieties in the Asia-Pacific region was provided by an increase in contract prices of Middle Eastern producers, as well as a decrease in arbitration shipments.
In addition, the demand for raw materials in the region continues to recover faster than in other parts of the world.
Source: stated by the Argus agency in its “Argus North Sea Date,” price assessment.