According to Bloomberg, next year Russia may create a reference grade of oil, which will be a response to the West’s intention to introduce marginal prices for Russian oil and thus limit Russia’s oil revenues.
Russia intends to create its own benchmark grade of oil by 2023, Bloomberg reported, citing sources and documents received. According to the agency, the idea is under discussion. The negotiations are conducted by ministries, oil producers, and the Central Bank.
Sales of raw materials on the domestic platform, according to the agency, can be launched as early as October 2022. It is reported that Russia intends to attract foreign buyers in order to reach trading volumes sufficient to install an exchange indicator from March to July 2023.
At the moment, the reference grades of oil are Brent, WTI, and Dubai Crude for Asian markets. Russian Urals and Siberian Light are trading relative to Brent at a discount.
According to Stanislav Mitrakhovich, a leading expert of the National Energy Security Foundation and the Financial University, “Russia has tried to move in this direction over the past 20 years, there was an experience of creating a grade of oil called REBCO — Russian Export Blend Crude Oil. There were attempts to create other varieties, but all this did not work out […] But in new circumstances, when there is a conflict with the West, new attempts will be made […] Given that there are China and India, it may be possible to agree with them on the creation of new varieties and new trade mechanisms.”
The general idea is to create an independent pricing mechanism for Russian oil, which will not be associated with Western exchange institutions, and friendly countries will buy this oil. Previously, the Urals discount to Brent was 1-2 dollars per barrel. Now it already reaches 30-35 dollars. And due to the reference grade of oil, it is planned to reduce it to 5-10 dollars.
Bloomberg wrote that the US and its allies have began discussing the establishment of a maximum price for Russian oil at the level of 40-60 dollars per barrel in early July. Moscow said that the introduction of a ceiling for oil prices would only worsen the energy crisis.
Alexey Belogoryev, Deputy director of the Institute of Energy and Finance, believes that in order for the grade to become a reference, high liquidity of exchange trading is necessary.
“We are talking not only about supply futures, but also about paper oil trading, which sets the whole feature of the oil market, that is, it is necessary to attract financial speculators en masse, a runoff of investors for whom oil is not a necessary commodity, but a purely financial instrument,” he assured.
Another issue the expert pointed to is the reliability of supplies, for which he suggests that Russia will have to build new storage facilities.