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Russian minister, producers discuss oil quality as Urals standards dip

Russia’s energy minister and senior executives from Russian oil majors discussed the quality of Russian oil on Tuesday, a day after Reuters reported some European refiners are threatening to cut purchases due to worsening quality.

The quality of Russia’s flagship Urals oil grade was one of the topics on the agenda at a meeting at the energy ministry in Moscow between the executives and the minister, Alexander Novak, the ministry said in a statement. A ministry spokeswoman declined to comment on the outcome of the meeting.

A source familiar with the discussions, who spoke on condition of anonymity, said no decision has been taken on how to tackle the worsening quality. The source said though there is concern in the ministry that the quality issues could lead to a drop in the price of Urals.

The meeting at the energy ministry was attended by, among other executives, Vagit Alekperov, president of Russia’s No.2 oil producer Lukoil, Vladimir Bogdanov, the head of Russia’s third largest oil producer Surgutneftegaz and Pavel Fedorov, a vice president of country’s largest oil company Rosneft.

Maxim Grishanin, the deputy chief executive of Russian oil pipeline monopoly Transneft was also present, according to a Reuters reporter who was at the ministry.

European refineries which process Russian oil have been complaining about the worsening quality of Urals, including rising sulphur content and higher gravity, making the oil harder to refine.

The quality has deteriorated so much that several buyers are reviewing how much they buy and the price they are willing to pay for it, according to traders and sources close to European refiners.

Some industry sources linked the drop in quality to rising supplies of the lighter, higher-quality ESPO blend to China.

The oil exported by Russia is a blend of crude cargoes of different chemical compositions, that are mixed inside the domestic pipeline network. If better-quality cargoes are diverted eastwards, that results in a lower aggregate quality being exported to Europe.

The worsening quality of Urals has had a negative effect on prices. On Monday, Urals crude differentials in northwest Europe eased to their lowest levels since October on sluggish demand for the grade.
Source: Reuters (Reporting by Vladimir Soldatkin and Olesya Astakhova, editing by David Evans)

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