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Urals oil discount widens as freight rates for Russian oil jump – traders, Reuters calculations

Russian Urals oil’s discount to dated Brent have widened significantly, under pressure from record high freight rates for tankers carrying Russian oil and sending sellers’ revenues well below an agreed EU price cap, two traders said on Friday and Reuters calculations showed.

EU governments on Friday agreed to a price cap of $60 per barrel for the Russian crude.

The cost of shipping Urals from Russia’s ports to China and India, the key grade’s consumers in Asia, doubled in December to $18 million and $15 million lump sum (full price for the tanker voyage) respectively, the traders said.

Therefore, freight cost for this voyages went up to some $20 per barrel for India and $25 per barrel for China, according to Reuters calculations.

As a result Urals sellers’ revenues may go down to $40-45 per barrel on FOB (free-on-board) Primorsk, Ust-Luga and Novorossiisk basis, which is well below the price cap level of $60 per barrel, Reuters calculations showed.

MARKET UNCERTAINTY

G7 members and the EU were in a hurry to agree on the details of the restrictions prior to Dec. 5, while traders, shipping agents and insurers still have questions about the rules for the operation of restrictions.

Fearing to disrupt a yet-to-be-established mechanism, many shipowners have refrained from handling Russian oil, reducing tanker availability and driving up shipping costs on key Urals export routes.

“It is just impossible to find vessels to load Urals on certain dates, there are simply no physical offers,” a source in trade circles said.

According to Riverlake agency data, freight rates for Ice-class tankers on the routes from Primorsk and Ust-Luga to Rotterdam were also high – 400 Worldscale points (WS) at the end of November against 225-235 points earlier last month.

Freight rates for 80,000 Aframax class tankers on routes from Black Sea’s Novorossiysk to Augusta were at the highest level since March – 475 Worldscale points.
Source: Reuters

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