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Russian domestic crude lower in Nov as lower Brent drags netbacks down

Russian crude spot prices for domestic loading and delivery by pipeline in November fell by around Rb3,000/mt ($47/mt) from October as weaker Brent values pushed export netbacks down.

The exchange rate did not offset the Brent impact, as the Russian ruble retained levels at around Rb63-64 to the dollar, similar to when October volumes traded. The export duty on Russia’s Urals crude also did not impact netbacks as it was only marginally higher at $88.30/mt for November, up from $87.20/mt for October.

Rosneft awarded its monthly Udmurtia tender at Rb20,801-20,896/mt, down around Rb3,700/mt from last month, when the company sold domestic crude at Rb24,570/mt, sources said.

Prices at the tender tracked the weaker Brent futures market, as Brent futures were around $58-$59/b when the tender was issued and awarded. Last month, Brent futures fell to $62-$64/b when the tender was awarded, from $65-$67/b when it was issued.

But after Rosneft’s tender for November volumes was awarded, Brent futures rose to $60-$61/b, pushing spot prices of crude delivered by pipeline to Russian refineries next month higher. Nonetheless spot prices were seen more attractive versus formula prices which typically track Brent values.

Spot prices of Western Siberian barrels on the Russian domestic market had firmed tracking the stronger Brent values with deals heard in the Rb21,500-21,700/mt range. Typically spot prices of domestic crude follow the trend set by Rosneft’s tender, although they climbed subsequently on the back of firmer Brent. Prices for Western Siberian crude on the spot market were heard in a Rb24,500-24,700/mt range last month for October volumes.

Usa crude from the Timan Pechora region was offered between Rb21,560-23,510/mt on the St. Petersburg exchange. Last month it was offered at Rb24,290/mt on the exchange without soliciting buying interest.

Crimean crude/gas condensate traded as high as Rb28,300/mt after changing hands earlier at Rb27,800-28,350/mt for truck loading. Last month, it traded on the exchange as high as Rb27,700/mt for truck loading.

Export-oriented Varandey crude traded at Rb21,460/mt with 25,000 mt changing hands. Last month it traded at Rb24,800/mt on the exchange with 13,500 mt changing hands.

IMO RULE IMPACT

Meanwhile the spread of prices of railcar volumes widened significantly depending on the sulfur content, as demand for low sulfur crude was boosted by the upcoming International Maritime Organization low sulfur cap on marine fuel.

The IMO has decreed that the limit on sulfur content in emissions from ships on the high seas must fall from the current level of 3.5% to 0.5% as of January 1.

As a result crude with 1% sulfur traded around Rb3,700/mt lower on the month, according to sources, commensurate with the Rosneft tender result, while crude with sulfur below 0.3% was heard only Rb1,000/mt down. Railcar volumes saw an increase of around Rb1,100/mt last month.

Demand for low sulfur crude oil is expected to remain well supported as 2020 approaches, especially by mini-refineries that typically process low sulfur crude and gas condensate and produce mostly low sulfur straight run.

Many will aim to supply 0.5% fuel oil to the bunker market at least until April 1, when the government introduces an excise duty on fuel oil, which would make its production less profitable.

However, as bunker users could get the excise refunded, the ultra low sulfur fuel could still head to the domestic bunker market, or alternatively be sent for export.

Bigger refineries, that process high sulfur crude, are likely to ramp up production of residue and bitumen instead of fuel oil, in order to avoid the burden of the excise duty, or increase production of VGO which can be exported, according to sources.

A proposal by Russia’s government to hold off a tougher international sulfur cap on marine fuel emissions until 2024 for river vessels in the Eurasian Economic Union is unlikely to have a big impact on the fuel oil market as the river fleet consumes mostly diesel, said traders.
Source: Platts

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