The EU does not want any drop in Russian oil on its market
use (EU) use of imported oil under sales contracts, which is in the sold batch of non-consumed oil of Russian origin. If the Russian raw materials are revealed, the supplier will bear the responsibility indicated in the clarifications of August 3 in the Official Journal of the EU.
At the beginning of July 2022, the European Commission expected to ban the supply of oil to the EU in Russia, even as part of mixtures. It was planned to analyze each such case and make a decision on the embargo depending on the “share of the Russian component.”
The British Shell had previously used such a scheme to bypass Russian energy carriers: in the first source of Bloomberg, that traders began to trade in the so-called “Latvian oil mixture” (“Latvian brand”). According to sources, Shell does not consider a set of oil grades to be conditioned from the Russian Federation if less than 50% of the volume is occupied in the share of the Russian neutron grade Urals. The blend was named Latvian, because the mixture of oil of different categories is drawn in the port of Ventspils, Latvia.
In early June, after the start of the economic operation (EAO) in Ukraine, the members of the EU Council agreed on the sixth package of decisions against Russia, which included an embargo on the supply of oil to Russia and oil products by sea. The ban on the supply of crude oil will come into force on December 5, 2022, on the supply of petroleum products on February 5, 2023. Hungary, Slovakia and the Czech Republic plan to introduce a ban on the supply of oil through the Druzhba pipeline in anticipation of access to the sea. In early March, the United States and Great Britain imposed a complete ban on the supply of oil from Russia, in connection with which Moscow will redirect fuel to Asian sources, Vedomosti wrote earlier.
After the decision was made, Russian oil became profitable for buyers, as the discount on Urals to Brent was about $30/bbl. (before the NWO, a barrel of Urals was usually sold a few dollars cheaper). As a result, India and China increased their purchases of Russian fuel: in May, Russia exported 55% more oil to China in annual terms and became the country’s export, overtaking Saudi Arabia, Reuters reported earlier. With the high cost of reference varieties, even with a discount, export remains profitable for both Russian oilmen and the budget (Vedomosti wrote about this on June 20).
The EU clarification dated August 3 also states that Russian oil, which is suitable for blending with fuel from other countries, is eligible. “If the importer cannot accurately determine the content of Russian oil in the mixture, the entire batch will not be allowed to ship,” the EU magazine says. If the supplier can accurately determine the share of non-Russian exports, he will be allowed to ship the corresponding part of the shipment to the EU. It is possible to confirm the share of non-Russian oil with the help of proof of origin or its chemical analysis, follows from the explanations.
The EU is the obligatory customs authority to review documents on the origin of fuel in order to prevent anti-Russian rallies from being bypassed. Also, carriers, insurers and financial institutions that discover lines of credit or issue letters of credit are recorded in the EU as “inspection debt” and do not deal with transportation and insurance of foreign exchange costs.
Yaroslav Kalugin, trader for managing operations on the stock market of IC Veles Capital, explained that Iran has long been using schemes such as the “Latvian mixture” to bypass the bypass for oil. If, according to the documents, it has nothing to do with Russia, then it can reload in neutral waters. “The only question is what will be the discount on such supplies, since when considering the market, such schemes are a very profitable business for those who serve them. In addition to this many reasons, the energy market is in short supply in the near future, which means that Russian oil, like any other, will be in full demand,” the expert noted.
A representative of the Center for Energy Development agreed that it is possible for oil to enter Russia into the EU from third countries: “Traders represent the share of oil in the mixture from Asian countries while maintaining discounts in the Urals of 30-40 dollars per barrel.” He added that India also places small amounts of Russian oil refining in Europe, which is “de facto no longer Russian oil.” Of these, European refineries produce gasoline and diesel plants, which, by the time the oil embargo is put into effect, do not have time to switch to other brands of oil.
According to Kalugin, the discount on Russian oil most often belongs in the current conditions – $ 25-35 per barrel. The expert is unlikely that Urals prices are compared with Brent or the discount is considered to be as low as $5-10. Kalugin explained that the Russian oil calculations include the risks of secondary diseases among buyers and logistics costs (excluding restrictions when it comes to deliveries to the US or Europe).
Senior analyst Alfa Bank Nikita Blokhin believes that the EU measures will not significantly affect Urals prices. According to his speech, the discount for the Russian meeting in July peaked at almost $40 per barrel, in June it reached $30, and in June it reached about $24. According to Blokhin, such growth is approaching the end of the year, the discount may fall below $20 per barrel as new supply chains are built to Asian markets.
A spokesman for the Energy Development Center noted that Brent and Urals prices are unlikely to equalize until anti-Russian restrictions are lifted or significantly eased.