Russian Oil Being Sold To India Below Price Cap

Russia's flagship Urals crude has been sold at deeper discounts this month following a European ban on Russian oil imports, and dominant buyer India has bought barrels at well below a $60 price cap agreed by the West, four market sources told Nidhi Verma of Reuters.

Photo Insert: Western actions have left Russian producers in fierce competition with each other and with suppliers from Asia, Europe, and the Middle East, meaning they have to cut prices.

The European Union (EU) ban on imports of Russia's seaborne oil from Dec. 5 has driven Moscow to seek alternative markets, mainly in Asia, for about 1 million barrels per day.

On Dec. 5, the Group of Seven (G7) leading economies implemented a $60 price cap on Russian seaborne oil to try to limit Moscow's ability to finance its war in Ukraine. Russia said it will not abide by the cap even if it has to cut output.

Western actions have left Russian producers in fierce competition with each other and with suppliers from Asia, Europe, and the Middle East, meaning they have to cut prices, two traders said. Since Russia began its invasion of Ukraine in February, India has become the main outlet for seaborne cargoes of Urals crude.

For some deals this month, the price for Urals in Indian ports, including insurance and delivery by ship, has fallen to around minus $12-$15 per barrel versus a monthly average of dated Brent, down from a discount of $5-$8 per barrel in October and $10-$11 in November, the sources said.

The discounts mean oil is in some cases being sold at below overall production cost including local levies, industry sources said.

The pressure on producers has increased further at Russia's western ports because a shortage of vessels suited to Russian winter weather has driven up freight costs, which can be borne by the seller depending on the terms of deals agreed.

Freight rates have risen to between $11 and $19 a barrel compared with less than $3 per barrel before February and are roughly twice as much as in the middle of the year. Reuters calculations showed discounts for Urals oil at Russia's western ports for sale to India under some deals have widened to $32-$35 per barrel when freight is not included in the price.

The value of the Dated Brent benchmark hovered below $80 a barrel early in December, while the estimated cost of Russian oil for producers including extraction, tax, and transport costs to export ports stood around $15-45 per barrel, deputy energy minister Pavel Sorokin said last year.

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