Russia launches futures contract for Urals crude oil is a key product for domestic exports. So Moscow wants to increase revenues from the sale of “black gold”, and to move away from binding to the Urals quotations for North sea Brent crude. On Thursday, April 28, reported Bloomberg.
A futures contract on Urals will be launched at the St. Petersburg international Mercantile exchange (SPIMEX). As explained by Bloomberg SPIMEX President Alexei Rybnikov, “the goal is to create a system in which Russian oil is priced and sold fairly and openly”. He said that the largest Russian oil companies, including Rosneft, LUKOIL and Gazprom Neft, support this initiative.
Recall: now Urals sold at a discount to international benchmark Brent, quotes, which according to the Agency Platts. According to Rybnikov, the launch of its own market of futures contracts will allow Russia to improve the pricing mechanism of Urals and Russian companies, generate additional revenues.
As stated in the document on the official website of SPIMEX, the initial volume of the futures contract will amount to 1 thousand barrels, minimum delivery quantity — 720 thousand barrels. For the successful launch of the project in the first phase, the futures will be traded in U.S. dollars.
As stated by “the Russian newspaper” the President of the Russian exchange Union Anatoly Gavrilenko, the exchange has been working on the introduction of futures on Urals, and now it could happen before the end of this year.
To have any future, said Gavrilenko, political will is needed. “There are lovely grounds, which have been trading futures for many years. And suddenly we declare your tool. Of course, the attitude will be cool at first. And to our futures was able to declare itself, to the respect of the world players, we need to ensure the regularity of trading, turnover and volumes. And, of course, the transparency of our market,” — said Gavrilenko.
“This will increase revenues from sales of raw materials and escape from the calculations in dollars, which will be the embodiment of long-standing dream of Russian President Vladimir Putin,” Bloomberg summarizes.
Note that previous attempts to make Russian oil Urals internationally recognized reference strain and increase the demand for it have been unsuccessful. So, in 2007, the new York stock exchange refused to include futures contracts for Urals in the number of traded.
Will it decouple from Brent Urals at this time, what a prize awaits Russia in the case of success?
— Russia — one of the three largest oil producing countries, along with USA and Saudi Arabia, producing over 10 million barrels of oil per day, — resembles the head of a direction “Finance and Economics” Institute of contemporary development Nikita Maslennikov. — With such volumes of production and exports of Russian Urals blend should, of course, to be an independent price benchmark for the global market. But now the Urals blend Brent linked to, and traded with the so-called spread (the discount). On the market in Rotterdam is the largest global platform for trade in oil and petroleum products — the value of this spread for the last year amounted to an average of $ 2.5−3 per barrel.
When formed an independent price benchmark, the price of a particular grade of oil is determined in another way: the market ratio of supply and demand. If Urals will manage to promote to the position of standard, this will mean a completely different oil-based economy, and another level of Russia as a player in the market.
— Why in this case Urals can rise?
— In its physical and technical characteristics of the Urals is still not fully opened its market potential. For many processors it is beneficial is due to its composition. Experts believe that if our grade was trading as an independent in the Brent system, it would be possible to expect steady growth of demand for Russian oil.
For Russia, this is naturally profitable. Now, let me remind you, we supply oil mostly to Europe. F Brent would allow us to diversify the distribution channels of oil and to increase shipments to Asia. On Asian markets a slightly different pricing mechanism than on the European markets, and oil prices are higher there than in Europe.
It’s a tempting prospect, but the path to it is thorny and long.
— Why do you think so?
— The transformation of the Brent price benchmark took about six years, and took place in several stages. Moreover, stock exchanges prior to recognition of the benchmark Brent traded North sea oil in the so-called deliverable futures.
Now similar way have to repeat Urals. SPIMEX President Alexei Rybnikov said in an interview with “Vedomosti” that it is possible to achieve the consolidation of the Russian mixture of status benchmark price within three years. In other words, this is a solvable problem. But for this we need, as in the case of Brent, to establish to begin trading deliverable futures.
This task can be technically resolved before the end of 2016, according to the stockbrokers. But continue on the path of transformation of the Urals in the price benchmark has some pitfalls. And main from them — the quality certification of our mix.
For years the issue remained in limbo for a simple reason. Urals — a cocktail of different grades of oil, for example, quite a lot of Tatar and Bashkir high-sulfur grades of oil. Moreover, this cocktail composition is not too stable. It is clear that if you are applying for the status of a price reference, this stability must be guaranteed. Technologically the Russian oil industry to sustain these standards pretty difficult.
There is another problem — ensuring the volume of obligatory sale of oil on the commodity exchange. Now this issue is under discussion. It is proposed to oblige Russian companies to pass through the stock exchange 5-10% of the extracted oil. But the question arises, as to be subject to the volumes that already today — without a deliverable futures contracted for a long time? In this case, you must either violate contractual obligations or to obtain additional oil and both outputs in practice are unacceptable.
A lot of arises and other technical details. At first glance, they do not seem insurmountable, but in fact it is unclear how to solve them.
— Will we try to decouple from the dollar Urals?
— This question is very specific. Oil, according to custom, is now traded in dollars. So while total translation of the Urals for trade in rubles — this is only our wish. But in Asia the share of calculations in national currencies, and there, I think, a significant part of the Urals could be traded in rubles, in the framework of bilateral relations.
But first, again, the Urals should become the standard of exchange with a guarantee of quality that our partners clearly understand what they’re buying. In addition, in the case of the translation of trade into rubles required to bind Urals to any interim financial tool. This is necessary in order for buyer to understand what it is more profitable to buy Russian crude oil — in dollars or rubles?
But in any case, do not expect that in one moment forever Urals unbind from the dollar, and will trade exclusively in rubles. This over-optimistic scenario.
— If in 2016 will start trading on SPIMEX Urals, what will be the outcome?
— Futures on Urals will definitely be this year started for internal trade. I think in 2017 we will be able to skip through the exchange of 5% of the oil produced in the Russian Federation. How will the events develop, it is very difficult to assume. This forecast depends on many details that are not obvious today.
I think, in the international market spread Urals to Brent will remain entire and 2017. But only as to trading in futures on Urals catch up with foreign players — and this can happen on the track in 3-4 years — f Brent will form a new price level for Urals. I feel that our oil may trade at U.S. West Texas Intermediate (WTI).
It means game for Russia is worth the candle.
— At first, Russian oil will be traded on the St. Petersburg exchange for dollars, while dissociating from the dollar Russia much more interesting, — considers the head of analytical Department of national energy security Fund Alexander Pasechnik. In this case, the auction would have to strengthen the Russian national currency and to increase the capitalization of our oil companies. But now it is important to make the first move, and what is being done — no doubt, a step in the right direction.
In 2006, I recall, Russia made a first attempt of this kind — and tried to create a new brand of oil Rebco, and go out with him on the world stock exchanges. The contract for Rebco defines this variety as “Urals FOB Primorsk” — that is, as Russian crude oil supplied by pipeline to the side of the tanker of Primorsk.
Additional revenues to the Treasury from the recognition Rebco pricing benchmark the then Cabinet, in the person of Deputy Minister of economic development and trade Kirill Androsov, was estimated at $ 3 billion a year. But the project failed, as Russian oil companies were not interested in the quotation of the brand because of the system of taxation in Russia, and lack of incentives for the withdrawal of significant volumes of oil to the stock exchange.
I think right now the lessons will be incorporated into Rebco and all Russian oil will be able to get rid of Brent…
