Russian Urals prices $30/b under Dubai crude, leaves huge profit margin
Quantum Commodity Intelligence - Global crude oil prices ticked higher in January after a sluggish start to 2023, with key benchmarks, including Brent and Dubai, posting comfortable gains of 3-4% based on the monthly average.
The exception was Russia's flagship Urals crude as export prices retreated after EU sanctions on Russian crude kicked in early December, along with the US-led price cap of $60/b.
Urals export prices averaged $49.48/b in January, according to the Russian Finance Ministry, well below the $60/b price cap. This compares to $50.47/b in December and $76.09/b in January-December 2022.
It puts Urals crude at more than $30/b below the Middle East Dubai benchmark on a like-for-like FOB basis, leaving a massive profit for the trading firms acting as middlemen and refiners still running Russian crude – primarily those in India, which now ultimately account for the bulk of seaborne Urals exports.
Quantum's January monthly average price for Dubai was $80.38/b FOB Middle East, a gain of 4.1% on the month, while Oman, which is a close match to Urals in terms of quality, averaged $80.55/b FOB.
Russian Urals is now sold almost exclusively to Asia, making the Platts Dubai price far more relevant than the Dated Brent price traditionally used for underlying pricing, while Russia uses Argus assessments for calculating export duty and price differentials versus benchmarks.
Freight
Middle East-India sailing time is just a few days making the route one of the cheapest on major VLCC trade flows and charterers are accustomed to paying $1 per barrel or less during 'normal' shipping times.
Shipping crude from the Baltic or Black Sea, the export hubs for Urals, is significantly more expensive, although freight makes up a relatively small percentage of the cost of landed crude.
For instance, last September, Price Reporting Agency Platts set its Worldscale rate for VLCCs on the benchmark Middle East Gulf-China route above W100 for the first time since April 2020, which equated to $20/mt, or around $3/b in freight charges.
At the absolute extreme, charterers were forced to pay up to $10/b on US-China routes at the height of the 2020 Covid pandemic, as Chinese refiners hoovered up massively discounted crude, which was pricing at 20-year lows.
Middle East Gulf to China rates are currently pegged at around W50, according to shipping broker Fearnleys, with tanker costs returning to more modest levels after the elevated freight in 2022.
A typical VLCC carries a standard 2 million barrels or around 250,000 mt.
Shadow fleet
Russian crude is now almost exclusively shipped on the so-called dark, or shadow fleet, which operates outside Western oversight.
Energy Intelligence reported earlier this week that Russian exports are increasingly handled by a "new group of obscure traders" using non-Western registered tankers, adding that details have been obscured as shipping and trade move into the shadows.
Given the nature of the business, it's almost impossible to track shipping costs reliably but as the 'dark fleet' is generally made up of older and cheaper tonnage, operators likely charge something around 'market rate' for shipping Russian crude rather than huge premiums.
Likewise, the cost of credit and insurance in the shadow market is equally obscure.
The dark fleet has also grown rapidly in recent months, made up now of nearly 140 VLCCS and 80 Suezmax tankers, which handle around 1 million barrels.
At market rate, Urals crude would land in India at low-mid $50s/b, based on official export prices, or nearly $30/b below a similar barrel of Oman pricing CIF India.
But for the new group of trading firms that have emerged to ship Russian crude specifically, a sale price within the $60/b ceiling represents a huge margin in a business where profits for shipping physical crude would typically be counted in the 10s of cents per barrel rather than multiple dollars.
