Russian Urals Crude Oil Premium Rises to 20-Year High

Russian Urals crude jumped to the highest premium to Dated Brent in at least 20 years after a decline in seaborne exports.

Urals was at 73 cents a barrel more than Dated Brent in the Mediterranean, the highest since at least July 1991 when Bloomberg started tracking the data. Over the past two decades, Urals has usually traded at a discount to Brent, averaging almost $4 less than the North Sea benchmark in 2005.

The strength in the Urals price this month coincides with a plunge in combined exports from the Baltic Sea port of Primorsk and the Black Sea terminal Novorossiysk to the lowest in at least five years.

“This is to do with a boost to domestic refineries in summer, and Russia is also hiking exports to China” while slowing exports into Europe, said Andrey Kryuchenkov, an analyst at VTB Capital in London.

Russia plans to export 905,610 barrels a day of Urals from Primorsk in July, the lowest in more than five years, and less than 1 million barrels a day for a second consecutive month, according to data complied by Bloomberg based on loading programs.

Urals exports from Novorossiysk for July will be 8 percent less from June, at 693,276 barrels a day. Combined daily exports from the two ports will be 1.6 million barrels, down 21 percent from 2.02 million a year earlier, the data show.

Russia’s Refineries

The demand from domestic refineries, which are running at full steam, is outpacing growth in crude supply, analysts led by David Wech at Vienna-based consultant JBC Energy GmbH said in a report today.

Russia’s available oil-refining capacity hit a 17-week high on July 3, data from the country’s Energy Ministry show today. Crude deliveries to refiners in June were up 3.4 percent from a year earlier.

JBC estimated the seaborne exports for Urals will drop to a multiyear low in July, about 400,000 barrels a day less than a year earlier.

One reason is that some Russian crude is being redirected to Asian markets with East Siberian-Pacific Pipeline, or ESPO crude exports to Kozmino on the Pacific coast almost 150,000 barrels a day higher than year-earlier levels. The amount sent through the Druzhba pipeline has also increased as a result of new direct agreements between Russian suppliers and Polish and Czech refiners, the report said.

Less Kazakh

“Kazakh and Azeri volumes blended into the Urals stream may have also seen a decline in line with disappointing output and some volumes re-routed to Asia,” JBC said.

These three reasons; the redirection to Asia, increased Druzhba flows and reduced quantities of Caspian oil, may account for 300,000 barrels a day, which explains the fall in Urals exports by sea, the Vienna-based consultant said.

The particularly low July loadings may also partly reflect one-time effects of a reallocation in domestic supply patterns related to OAO Rosneft’s takeover of TNK-BP.

OAO Lukoil yesterday failed to buy 80,000 metric tons of Urals for loading on July 15 to July 19 at 70 cents a barrel more than Dated Brent on a delivered basis to Augusta, Italy, according to a Bloomberg survey of traders and brokers monitoring the Platts pricing window. This was the highest bid in more than three years. Dated Brent was $105.88 a barrel as of 5:30 p.m. in London, according to data compiled by Bloomberg.

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