Lukoil Discount Swells as Oil Plunges: Russia Overnight

Offshore receipts of OAO Rosneft and OAO Surgutneftegas fell last week, extending their discounts versus Moscow shares, as Russian equity markets open after a four-day holiday.

Global depositary receipts of Rosneft, Russia’s largest oil producer, slipped 2.5 percent in London last week, extending the discount to the company’s Moscow stock to 2.9 percent, the widest gap since January 2009. American depositary receipts of Surgut, the third-largest oil company, slid 3.7 percent to trade 3.2 percent below the local equity, the biggest gap since May. The Bloomberg Russia-US Equity Index fell for the first time in three weeks.

Oil, which together with natural gas accounts for about half of Russia’s budget revenue, dropped the most in 19 months last week as a U.S. government report showed that inventories of gasoline and distillate fuel climbed. Rosneft’s exports plunged 15 percent in December compared with the prior month, data from the Energy Ministry showed Jan. 2. Markets in Russia shut for national holiday Dec. 30 and are set to reopen today before closing for Orthodox Christmas tomorrow.

“The question is how much further oil prices will decline and that is what investors are concerned about as Russia’s dependence on oil and commodity prices remains strong beyond doubt,” Ivan Manaenko, the head of research at Veles Capital in Moscow, said by phone Jan. 3.

Veles Capital expects Brent oil will average about $100 per barrel in 2014, Manaenko said. That compares with $108.7 per barrel in 2013, data compiled by Bloomberg show.

Oil Exports

Total Russian oil exports via OAO Transneft, the country’s oil pipeline operator, fell 1.9 percent in December from the same month a year ago, Energy Ministry data show. Surgut’s exports slipped 2.5 percent compared with a year ago.

In November, total Russian exports had risen 2.8 percent.

Crude for February slipped 1.6 percent to $93.96 a barrel on the New York Mercantile Exchange for a 6.3 percent weekly slide, the biggest since June 2012. Brent for February settlement decreased 0.8 percent to $106.89 a barrel on the London-based ICE Futures Europe exchange.

Supplies of distillate fuel rose 5.04 million barrels to 119.1 million last week, U.S. Energy Information Administration said Jan. 3. Gasoline inventories increased by 844,000 barrels to 220.7 million in the week ended Dec. 27. Fuel demand tumbled 7.2 percent, the biggest drop since January 2012. Crude supplies fell for a fifth week as refiners on the Gulf Coast curbed deliveries to reduce local taxes.

ETF Sinks

The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, retreated 2.7 percent to $27.76, the biggest weekly drop in four months. The Bloomberg Russia-US gauge slipped 1.7 percent to 99.88 last week, the lowest level since Dec. 20.

OAO Lukoil, Russia’s second-largest oil producer, slipped 1.2 percent in New York last week, trading at a 0.5 percent discount to the company’s Moscow stock, the widest gap since Nov. 20.

VimpelCom Ltd., the wireless carrier with 219 million customers in 15 countries, had the biggest slide in seven weeks as it dropped 4.4 percent to $12.40. The stock was the worst performer on the Bloomberg-Russia gauge.

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