THEO VAN GOGH MEMRI Special Dispatch No. 10442 – Steep Decline In Price Of Russian Urals Oil Will Push Russia’s Budget Deeper Into The Red
On January 16, 2023, Russia’s Ministry of Finance reported that the average cost per barrel of Urals oil from December 15, 2022 to January 14, 2023 was $46.82 – a fall to a two-year low due to discounts and the strengthening of the ruble. The ministry said that these factors can largely influence the formation of the Russian budget. At this time, the cost of oil in rubles is 3,233, or $46.68 – a figure that is lower than the indicators included in the country’s budget. The ministry also noted the reduction of export duties on the oil from February; for oil, duty will now be $12.8 per ton.
Kommersant’s Ivan Yakunin unpacked this finance ministry announcement, stating that the price ceiling imposed on Russian oil by the West is working and is pushing the Russian budget deeper into the red. He added that the restrictions on the import of Russian oil products has put Russia in the unenviable position of seeing China capture the Western market for these products, using oil that it has acquired from Russia at a steep discount.
Yakunin’s article follows below:
“New difficulties await the Russian economy due to declining oil prices. According to the latest Ministry of Finance data, the average price of the Urals brand dropped to $46 [per barrel], while the budget was set [based on an assumption] of $70. The Russian authorities were going to cut production in order to limit supply and raise prices on the world market, but the latest data show that supplies, to the contrary, are growing. According to Bloomberg estimates, in just a week, the volume of shipping increased by 30% at once. Were will this lead to? Ivan Yakunin sorts this out.
“Despite assurances by Moscow, the [West-imposed] oil embargo and price ceiling on Russian crude oil are working. The spread between benchmark Brent and exported [Russia-produced] Urals brand of oil has risen to 43%; it’s a new anti-record. It would be logical to limit supply on the world market, so that the price would go higher, but Russia is acting differently: there are more shipments in the Baltic Sea, the Black Sea and the Far East.
“Sergei Kondratyev, Deputy Head at the Economic Department at the Institute of Energy and Finance, however, is optimistic. [He said]: ‘True, we have lost a share of the demand. Russian companies were forced to increase the differential [to purchasers] in order to increase the attractiveness of purchasing domestically produced oil. In the next two to three months, the situation will, probably, remain difficult, as the price differential will remain high.