Researchers suspect “widespread” violations of Russian oil prices in Asia Ship’s crew

By Alaric Nightingale (Bloomberg) —

The first quarter likely saw widespread violations of the Group of Seven oil price cap in Asia, according to a team of researchers analyzing official data on Russia’s foreign trade in addition to ship information.

In December, the G-7 imposed a $60 per barrel price cap on Russian oil and banned companies in those countries from offering a wide range of services, particularly insurance and shipping, if cargoes were purchased above that level.

But in the first quarter of this year, almost all of the oil from the Pacific port of Kozmino was sold for well over $60, and over half of the shipments were made on some sort of G-7 service, according to a learn of trade and shipping data by the KSE Institute, part of the Kyiv School of Economics, which is pushing for stricter enforcement.

“The fact that a significant proportion of Kozmino’s voyages involve Western-owned and/or insured vessels, while essentially all transactions are priced above US$60 per barrel, indicates potentially significant price cap violations,” they said Researchers.

The data underscores concerns raised in an April 17 US Treasury Department alert that shipments from Kozmino could face breaches.

While the report outlined ways in which sanctions enforcement could be stepped up, it also painted a larger picture of falling Russian oil prices due to a European Union import ban that cut into the Kremlin’s access to petrodollars to fund its war in Ukraine.

According to the study, Russian oil was exported at an average price of $58.62 per barrel in the first three months of the year. The average price over the four weeks of December after the cap was $73.70.

The European Union almost stopped buying Russian oil late last year, while also joining the G-7 cap.

Russian crude oil exports in Q1 2023 Average price in $/barrel
Baltic ports 43.59
Black Sea ports 47.89
Ports in the Arctic Ocean 67.64
Pacific ports 73.14
Druzhba pipeline 45.36
ESPO pipeline/via Kazakhstan 70.23
Other/unassigned 67.90

According to the report’s authors, Benjamin Hilgenstock, Elina Ribakova, Nataliia Shapoval, Tania Babina, Oleg Itskhoki and Maxim Mironov, the driving force behind the depressed prices was the European embargo, not the price cap.

Before the ban, the EU was the largest buyer of Urals, Russia’s top export variety. When action by the 27-nation bloc began, Russian casks had to be discounted when exported to attract customers in India and China, and freight bills also skyrocketed.

“Demand conditions have changed dramatically, leading to sharply lower prices,” the researchers said.

The price cap was intended to get Russian oil flowing, and the study found that the sanctions coalition’s strategy successfully continued to do so while curbing the country’s export earnings and tax revenues.

The exports analyzed mainly reflected deals where buyers paid for transportation, the cost of which remains extraordinarily high.

According to data from Argus Media Ltd., whose prices are the focus of the G-7’s price cap program, Urals cost about $18 a barrel more at the time of import than at the time of export in March.

“We can speculate that part of the shipping cost might end up in Russia,” the report’s authors told Bloomberg in a separate comment about the spread between export and import prices.

The research is based on a database of Russian crude oil and oil products exports, drawing on data from Russian authorities, statistics from trading partners, information from commercial data providers, investigative reports and material provided by the Free Russia Foundation.

© 2023 Bloomberg LP

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