Exporting Urals grade crude by sea from Russia has become uneconomical for producers, at least on paper, after outright prices dropped sharply yesterday.
Faced with a saturated domestic market and now with negative netbacks, producers could be incentivised to shut-in output when the Opec+ agreement comes into force next month, or even sooner. But, a drop in Russia's crude export duty next month may alleviate the situation.
Netbacks for crude loading for export at the Russian Baltic Sea ports of Primorsk and Ust-Luga, to Nizhnevartovsk in west Siberia, fell to -$18.57/t ($2.58/bl) and -$17.90/t, respectively. This is based on the fact that the combined cost of delivery through the Transneft pipeline system, transshipment at terminals and export duty exceeds prices at the ports. The netback for supplies to the Black Sea port of Novorossiysk fell to -$13.11/t. Netbacks for ESPO Blend supplies to the far east port of Kozmino remain positive, at $73/t.
These changes follow falls in outright prices yesterday. In northwest Europe, Urals fell by $5.92/bl to $11.59/bl on a cif Rotterdam basis, and in the Mediterranean 80,000t Urals cargo prices dropped by $5.17/bl to $12.09/bl, cif Augusta, the lowest since March 1999.
The negative netbacks are partly accounted for by the fact that Russia's April export duty of $52/t is based on 15 February-14 March prices. In May, the export duty will fall to just $6.8/t.
Baltic and Black Sea netbacks also turned negative when prices slumped between March 30 and April 1.
Under the Opec+ agreement, Russia is committed to reducing production by 2.5mn b/d in May-June from the agreed baseline level of 11mn b/d and then by 2mn b/d from July to December.
