Shell reportedly agreed to purchase Russia’s benchmark Urals crude from Trafigura Group at a record discount, confirming that many in the market continue to avoid the country’s oil but that at a bid still remains if the price is low enough.
Shell reportedly will pay a price around $28.45 below the going rate for Brent Crude, Bloomberg News reported Friday. Typically, Urals have priced two to three dollars below Brent.
The cargo has been bought on a delivered basis, according to Bloomberg. That means Shell won’t need to work out the transportation and will not be liable for payment if the cargo proves undeliverable.
The prior day, Trafigura had offered the cargo at a $22.70-a-barrel discount Brent but found there were no bids.
“The trade is the first such deal in a window organized by S&P Global Platts since Russia invaded Ukraine. While it underscores the deep discounts Russia is going to have to sell its oil at, it’s also the first indication that it will still find some willing buyers in companies that are reliant on Urals crude,” Bloomberg News reported.
While there are no sanctions on exports of Russian crude or refined oil products, demand for Russian oil has evaporated since the attack on Ukraine.
The reasons cited are plentiful.
- Some typical buyers have moral objections to purchasing oil from Russia.
- Banks and trading houses have limited credit for Russia-related deals.
- The financial sanctions on Russian banks have left many unclear about how to clear transactions with Russian producers without running afoul of the rules.
- Some countries have restricted access to ports for Russian ships or ships containing Russian oil.
- Port workers in the U.K. have blocked the delivery of Russian energy products.
- Many in the market fear sanctions could be forthcoming, potentially stranding oil after it has been purchased.
- Others fear the reputational damage that could come from trading with Russian oil producers.
- The cost of shipping oil from Russia has exploded. “It now costs about $3.5 million to hire a tanker to deliver a million barrels to Italy from Russia’s Black Sea port of Novorossiysk — a voyage that should take no longer than a week. That’s a more-than 300% gain from before the invasion of Ukraine began,” Bloomberg News reported. Some shipowners are refusing to transport Russian oil altogether.
There has already been some pushback against Shell’s purchase. Javier Blas, a commodities writer for Bloomberg, accused the company of buying “when there’s blood in the streets.”
With the war in Ukraine raging, the trading unit of Shell can’t resist cheap oil, buying Urals crude at the record discount of minus $28.5-a-barrel to Brent.
This… um… gives a new meaning to Rothschild’s famous saying: “The time to buy is when there’s blood in the streets.”
— Javier Blas (@JavierBlas) March 4, 2022
Russian refining production has started to slow. According to S&P: “Rosneft’s 240,000 b/d Tuapse on the Black Sea halted crude uptake March 4 because it cannot ship its production, while the company’s 342,000 b/d Ryazan refinery in central Russia has reduced the volume it is accepting.”