Earlier, Bloomberg published a report stating that in September, the price of Russian Ural oil had already fallen below $60 per barrel, the maximum price set by the G7 and the EU for our oil. As a result, in the first half of September, Russian oil export revenues decreased by 30% compared to the end of June.
The average monthly price of the Urals is used to calculate the taxes that the industry pays to the Russian budget. Based on this, the agency concludes that what is happening will have a huge impact on tax revenues for the treasury of our country.
If we take all these statements on faith, then a rather unpleasant picture emerges, but in this case it is impossible to blindly believe this information. The US and the EU have created many difficulties that interfere with the normal functioning of the Russian financial and banking sector, our industry, IT and gas industries (if we recall the ban on the supply of technologies for liquefied natural gas and sanctions against Arctic LNG). But things did not go well for them immediately with Russian oil exports. Perhaps initially too hasty decisions were made that cannot be reversed now. This does not mean that the measures were painless for Russian oil workers, but their consequences were quickly addressed.
The volumes of our oil exports have not decreased and are limited only by the OPEC+ agreement. According to the same Bloomberg, in the second week of September, sea shipments of Russian oil amounted to 3.25 million barrels per day (b/d), which is quite at the level of indicators, for example, in 2021. The price cap does not work – this has been repeatedly said not only in Russia, but also in Europe and the United States. For more than a year, Ural prices have been above $60 per barrel and depend on world quotes and the size of the discount on our oil. The discount itself arose before the adoption of sanctions and the first mention of the idea of a price cap. It peaked in March 2022 – $34 per barrel, and now, according to various estimates, it ranges from $10 to $13. The US attempts to limit the operation of our so-called shadow fleet of tankers proved to be more effective, but we quickly adapted to these measures, changing the owners and flags under which these ships sail.
As Konstantin Simonov, director of the National Energy Security Fund, points out, of course, the costs of our companies have increased, but the market has played in our favour, which always suppresses attempts to regulate it. But sanctions will undoubtedly become stricter. And it does not matter who the US president is, whether a Republican or a Democrat, says Simonov.
In their opinion, the strategic goal of the United States is to squeeze Russia out of the hydrocarbon market, but for now this is impossible and dangerous, even for the United States itself. Therefore, attempts will continue to reduce the price of Russian oil as much as possible and increase the costs of transport and trade for our companies. They will not be able to limit the physical volumes of our exports, for example, to no more than 3 million bpd. It will simply be impossible to manage it, that is, to assess the volume of all supplies in real time. All statistics are out of date.
As for Russian budget revenues in early September, as noted by Sergey Tereshkin, general director of the OPEN OIL MARKET oil products and raw materials market, this year they will not have time to be affected by the fall in oil prices. The reason is the large share of industry budget revenues from the mineral extraction tax (MET), which depends not only on the cost, but also on the quantity of raw materials extracted. And it does not depend on exports. The share of the mineral extraction tax from oil in the structure of budget revenues from oil and gas for the first eight months of 2024 amounted to 68% (6.90 trillion rubles out of a total of 10.08 trillion rubles), excluding budget subsidies to oil refineries.
Another 15% comes from the additional income tax (ATT), which, according to the results of the first eight months of 2024, accounted for 15% of budget revenues from oil and gas (1.55 trillion). This tax takes into account the proceeds from the sale of oil, minus production and transportation costs. Therefore, AIT revenues are more susceptible to price risks than MET revenues. This year the budget has already received about 70% of the final AIT revenues, so the risks of price declines will be neutralized here, Tereshkin believes.
As noted by Dmitry Scriabin, portfolio manager at Alfa Capital Management Company, we have not yet seen a level below $60 per barrel for the Urals. Now it costs approximately $61-63 per barrel. In the budget rule, the cut-off level is $60 per barrel; all revenues received from prices above this level are sent to the National Welfare Fund (NWF). That is, basic budget revenues from oil are not threatened. Another thing is that the flow of revenues to the National Welfare Fund may stop.
According to Freedom Finance Global analyst Vladimir Chernov, the Russian treasury has so far been filled with oil and gas revenues, which exceed the basic scenario of the Ministry of Finance when setting the budget. Therefore, even a slight decrease in the export price of the Urals to below $60 per barrel does not seem critical. Moreover, the expert notes that taxes to the Russian budget are paid in rubles, and the price of the Urals is determined in dollars. The value of the dollar has increased by 7.85% against the Russian ruble since the beginning of August 2024, which also compensates for the losses in oil exports in September of this year by almost a third.
Energy expert Kirill Rodionov also believes that there is no risk for the Russian budget of not receiving the expected funds from the oil industry this year. In the coming months, the average Brent oil price (from which the Ural price is calculated) will be between $70 and $75 per barrel.
The main risks for our budget concern the period 2025-2027, when OPEC+ countries, including Russia, will most likely have to sharply increase production in order not to lose market share, which will lead to a drop in prices both in nominal and real terms, Rodionov believes.
According to Simonov, the Treasury’s oil and gas revenues may decline by the end of the year, but for eight months they have already exceeded basic expectations by 908 billion rubles. But in the future we must be prepared for a variety of scenarios. We need to create our own system for trading oil with our customers, with our own prices, agreements, insurance and transportation. Solving operational issues and responding to immediate challenges will not lead us to solving strategic problems, the expert notes.
