Russian Urals oil prices jumped above the $60 per barrel Western price cap on Wednesday as discounts for the grade narrowed in Indian ports for August barrels amid shorter supply, according to four sources involved in trading and Reuters calculations.
Discounts for Urals oil to dated Brent narrowed to just $5 per barrel for delivery on Indian ports, compared to last week’s estimates of $7-8 per barrel for end-July cargoes loading, according to the sources.
Calculated FOB estimates for Urals cargoes from Baltic ports in August rose above $64 per barrel on Wednesday for Indian customers as Brent trades above $80 per barrel, according to traders’ data and calculations.
The price cap of $60 per barrel was introduced in December by G7 countries. Washington said it would help to avoid supply disruptions by keeping Russian oil flowing, while also limiting revenues for Russia’s President Vladimir Putin.
The policy allows Urals oil cargoes trading below the price cap to be shipped and insured by Western companies.
The rise in daily Urals oil prices above the price cap doesn’t mean market players breach any sanctions as the price for a particular deal is normally calculated on the basis of a monthly or several-days average.
If international prices fall, the actual price of the deal could still be below the cap.
“Cheap Russian oil is not that cheap anymore,” one of the sources said.
Shrinking discounts could hit imports of Russian oil by India as buyers face problems in paying for barrels purchased above the price cap fixed by the Western nations, an Indian government source said earlier this week.
India’s imports of Russian oil edged up to an all-time high in June, though growing at the slowest pace since October, tanker data obtained from trade sources showed on Wednesday, signalling its appetite for Russian oil may have peaked.
Some sellers were offering Urals cargoes to India loading in August at a discount of $3-4 per barrel on DES basis, but found no buyers, three sources said.
“We are backing out, for $2-3 discount we will not take risk, payment is also a problem,” a source with a refiner told Reuters earlier this week.
One of the sources said that such price levels are not so attractive for Indian refiners anymore and might lead to softer demand for Russian barrels. Adding that Russian oil suppliers regularly fail to deliver barrels in time.
“Discounts of $3-$4 per barrel are not good for us, given there are often delays in cargo arrival from Russia,” the source said.
Another source in Russian oil market said that although prices were firm, Indian refiners don’t have reasonably price alternatives in sour supply.
Russian Urals oil jumped above the $60 per barrel Western price cap last week, but dropped slightly below the cap earlier this week on weaker Brent.
Source: Reuters (Reporting by Reuters reporters and Nidhi Verma; editing by David Evans)