Western price caps on Russian exports coincide with steep discounts on Russian crude and diesel — but not because of the caps themselves.
There are fewer buyers of Russia’s exports, with the EU, U.S., U.K. and Australia banning cargos altogether and others pulling back in fear of future sanctions. The lower the competition, the lower the price, thus the Russian discounts.
But the cap itself could soon come into play on the crude side, meaning the sanctions landscape for tankers could get a lot more complicated.
Russian Urals approaching price cap
The G-7 and EU implemented a $60-per-barrel cap for Russian crude on Dec. 5 and a $100-per-barrel cap for Russian diesel on Feb. 5.
G-7 and EU shipping service providers — including the all-important U.K. ship insurers — can participate in a voyage if they have written attestations that the cargo is priced below the cap.
Around a quarter of Russian seaborne exports are in the Pacific via the Eastern Siberia Pacific Ocean (ESPO) pipeline, loading in the port of Kozmino. The remaining export volume is primarily Urals grade crude loading in the Black Sea port of Novorossiysk and the Baltic Sea port of Primorsk.
According to price assessments by Argus, ESPO crude out of Kozmino is well above the cap and has been so since the beginning of sanctions. ESPO closed Thursday at $71.56 per barrel (based on the “free on board” or FOB price, which excludes shipping costs).
Now, the price of Urals is getting uncomfortably close to the cap. It is trading at a 35% discount to Brent, but as Brent rises in the wake of OPEC cuts and rebounding demand, Urals is now within a few dollars of the cap. Urals hit a recent high of $57 per barrel on Tuesday, according to Argus data.
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