Ural Oil

Ural Oil

Subject: Economy

Section: External sector

Context: Indian PSU oil companies buys discounted Russian crude resisting west pressure

Content:

India generally contracts Kazakh and Russian Ural crude oil on a free on board (FOB) basis. Most of the crude oil booked at present is Ural, which is a sulphur heavy grade, but supplies of the light sweet grade Sokol may also be shipped, largely from the Russian far-east region.

• Urals oil is a reference oil brand used as a basis for pricing of the Russian export oil mixture. It is a mix of heavy sour oil of Urals and the Volga region with light oil of Western Siberia. The opportunity for India to buy more of the Russian flagship grade that typically heads to Europe arose after its discount to global benchmark Brent fell to the widest since 2005, hit by rising tensions between Russia and the West over Ukraine.
• Russian oil is being offered through traders in the spot market at deep discounts against Brent or Dubai markers, cheaper by up to $18-22 per barrel depending on factors such as Sokol or Ural grade, and trader, etc.
• It is mostly on CIF basis(seller pays freight and marine insurance). Oil imports from Iran were routed through this mechanism.
• The discount makes it economically viable considering the long shipping route (more than 5,000 nautical miles) and the current freight costs. The discount of $18-22 per barrel can easily subsume $4-5 per barrel of shipping charges and still make it profitable to contract.
• Majority of the deliveries will be shipped through the Black Sea port of Novorossiysk (for Ural grade).