Urals/Dubai crude spread widens to record $32.50/b in February
Quantum Commodity Intelligence – The spread between Russia's flagship Urals crude and the Middle East Dubai benchmark widened by more than $1.50/b in February from already extreme levels, casting further doubts on prices reported by Moscow.
Urals export prices averaged $49.56/b in February, according to the Russian Finance Ministry, well below the $60/b price cap and up just $0.08/b from the January average of $49.48/b, with FOB prices barely budging since EU sanctions and the G7 price cap started in early December.
By comparison, Quantum's monthly average price for April-loading Dubai was $82.10/b, a gain of 2.1%, which compares with $80.38/b for March-loading crude.
This puts the Dubai/Urals spread at $32.54/b on a FOB basis last month, versus $30.90/b in January, and leaves potentially huge profit margins on shipments from the Black Sea or Baltic to Asia.
Sources said Urals has been recently offered at around $15/b under Brent into India on a DES basis (Delivered ex-ship), which is around a $13.50/b discount against Dubai.
This clearly puts delivered Urals prices into India well above the $60/b price cap, which is believed to apply to both FOB and delivered crude.
While shipping has been relatively robust this year, rates have eased from the highs seen last November and charterers would not expect to pay more than $3/b to ship crude from Europe to India, or a maximum of $5/b from the US Gulf to China.
Dark-fleet
However, Russian barrels are transported by the so-called 'dark fleet' which operates outside of Western oversight, meaning there is little price transparency.
While it's likely charterers pay a premium for 'dark fleet' shipping, the actual cost is seen substantially below the spread between FOB Europe and the delivered price in India.
Last month, a senior US Treasury official dismissed speculation that the Kremlin is gaming the system and actually collecting much higher revenues than declared, potentially with excess profits washed via shipping or trading outfits controlled by Moscow.
"To my knowledge. there is no hard data or conclusive evidence that supports speculation about Russia evading the sanctions by using coalition service providers and receiving above-the-cap payments," said Ben Harris, Assistant Secretary for Economic Policy.
Goldman Sachs said in a February client note that buyers have been paying more than reported levels.
"We argue that the resilience in production so far may partly reflect that the effective price paid for Russian oil appears significantly greater than the quoted price assessments," said the US investment bank.
