Energy for the budget: how the rise in price of Urals oil can affect the Russian economy

In June, the average price of Urals crude increased by more than 35% compared with May and reached $ 41.93 per barrel. This is evidenced by the materials of the Ministry of Finance of Russia.

Quotes began to grow steadily amid a moderate recovery in the balance of supply and demand of hydrocarbons in the world market. About this RT told the analyst of the information-analytical center "Alpari" Anna Bodrova.

“The most acute phase of the coronavirus pandemic has passed; many countries have lifted most quarantine measures, including restrictions on the movement of goods and population. This increased the demand for fuel, which had a positive effect on oil prices. In addition, an additional factor in price support is the observance by the countries participating in the OPEC transaction + of conditions for reducing production, ”Bodrova points out. 

At the end of June, Russian Urals oil became more expensive than Brent crude by $ 2.35. According to the analytical agency Argus, the difference between quotes has been a record since 1994.   

Experts explain the confident growth in demand for the Russian oil grade by the characteristics of the composition of raw materials. The Urals brand is characterized by a high sulfur content, while Brent and the American WTI are considered lighter grades. About this RT told in an interview with RT, an expert on the stock market “BCS Broker” Dmitry Babin.

“There is a shortage of high-sulfur oil in the market. This is due to a drop in supplies of raw materials from Venezuela, whose export opportunities are limited due to existing sanctions by the United States. As a result, Asian and European refineries, sharpened by heavy grades of oil, switched to a similar Russian one, which allowed it to quickly strengthen from $ 10 per barrel this spring to the level above $ 40 at the moment, ”the analyst said.

According to experts, China is most actively buying Russian oil. In May 2020, Russia supplied the Asian Republic with 7.7 million tons of oil, an increase of 22% compared to the same period in 2019. This is evidenced by the data of the Main Customs Administration of China.

At the same time, other countries of the Asia-Pacific Region (APR) are showing interest in Urals. According to Argus, in the first five months of 2020, the share of Asia-Pacific countries among importers of marine consignments of Russian raw materials reached 21%. At the same time, a year ago, the indicator did not exceed 7%.  

“Despite the fact that Beijing remains the largest consumer of our oil in the region, South Korea and Japan are also among the top ten import leaders. It is worth noting that the Urals brand is also popular in the European market. The Netherlands is the key buyer in Europe - the country acquires about 20% of the total supply of raw materials. Also, Germany, Poland and Italy are actively purchasing the Russian variety, ”said Valery Emelyanov, an analyst with Freedom Finance.

According to analysts, the growing interest of foreign partners in the procurement of Urals may positively affect the state of the Russian budget. In the spring, a record drop in global demand and commodity prices led to a sharp decline in revenues to the Russian treasury. As a result, according to the Ministry of Finance, from January to May, budget expenditures exceeded revenues by 409 billion rubles.

According to the latest forecast of the Bank of Russia, according to the results of 2020, the country's budget deficit may amount to about 6% of GDP. However, a gradual recovery in commodity prices and an increase in export supplies may reduce the negative difference between the revenues and expenses of the Russian treasury, Valery Emelyanov believes.  

Recall that as of 2020, the Russian budget has a basic oil price of $ 42.4 per barrel. Under the budget rule, if commodity quotes fall below this mark, then lost oil and gas revenues are compensated by the National Welfare Fund (NWF). If the cost of raw materials in the market rises above this indicator, excess profits, on the contrary, are sent to the SWF.   

“According to the latest estimates of the Ministry of Finance, in 2020 the deficit could reach about 2 trillion rubles. However, each additional dollar to the price of Urals oil above the base price brings the Russian treasury about 120 billion rubles a year. By the end of 2020, we expect a rise in stock quotes to at least $ 50, including the domestic grade of raw materials. This state of affairs will reduce the budget deficit, ”the expert concluded.