Cutting discounts on commodity exports does not close holes in the budget
The export discount that Russia was forced to provide to foreign buyers to maintain its share in the planet's energy balance has fallen to a negligible $15 per barrel, and importers have to literally snatch our raw materials out of each other's hands. This is how Nikolai Shulginov, head of the RF Ministry of Energy, described the current situation in the global fuel market. Meanwhile, Russian oil and gas revenues have almost halved. Experts explained the reasons for this paradox and predicted raw material revenues to the budget in the second half of the year.
Russia's struggle with the West in the global energy market is intensifying. Recently, the amendments of the 11th package of EU sanctions came into force, providing for an additional ban on the entry into the ports of the continent of ships carrying oil from our country at prices above the «ceiling» at $60. Thus, the Europeans are trying to at least partially cut the flow of raw materials that have been exported by domestic suppliers for two weeks, despite the requirements of the G7 at a higher cost.
According to Reuters, spot prices for the Urals export brand have been rising since June 27 and now Russian «black gold» buy almost $69 a barrel. The credit for the growth in the cost of our hydrocarbons belongs not only to the stable demand from the Asian partners, but also to our government. In March, when the Western «ceiling» began to work, officials at the legislative level called on mining companies to gradually cut the discount provided to foreign customers from the then $35-40. At the end of July, the task was even overfulfilled.
Oil in the world is now really valued quite highly: a barrel of Brent costs about $84. Russian manufacturers are gradually reorienting deliveries from the West to the East and are beginning to settle into local trading floors, reducing discounts. True, the process of changing the sales market, apparently, is not going too fast. Despite the rise in price of Urals, according to the International Energy Agency (IEA), our country’s revenue from oil exports in the first half of the year amounted to a little more than $77 billion, while in January-June 2022 it exceeded $120 billion. And in June, Russia’s export earnings from the sale of «black gold» decreased to $11.8 billion, while in the first six months of 2022 they amounted to more than $22 billion.
One of the main factors behind this paradox is the drop in physical volumes of energy supplies from our country abroad. «In June, compared with May, oil exports decreased by another 600,000 barrels per day,» — notes a private investor, financial analyst Fedor Sidorov. This is another local anti-record — the lowest since March 2021. In August, Russia, in order to «ensure the balance of the market» plans to reduce supplies by another 500,000 «barrels» under an agreement with OPEC +; per day, so it is probably not worth waiting for a decrease in the budget deficit from a reduction in discounts. The government, however, does not yet find negative trends in what is happening. “Our oil and refining industry is stable. The only thing that affects the volume of production is the agreements within OPEC + on the voluntary reduction in oil production and exports, — said Shulginov.
Another explanation for the decline in revenues from the sale of barrels follows from a certain incorrectness of comparing current revenues to the treasury with last year's figures. “In the first half of 2022, Brent quotes reached $115-120, and price sanctions on Urals have not yet worked,” — draws the attention of the head of the analytical research department of the IC «IVA Partners» Dmitry Alexandrov. Favorable market conditions also contributed to the raw materials super-revenue of the budget. Even with a high discount, suppliers managed to squeeze out a noticeable profit. “In 2022, Russia had record oil and gas revenues — they grew by 28%. Therefore, their fall this year can be explained by the high base of the past,” — says the head of the analytical department of AMarkets Artem Deev.
The situation may turn around in the second half of the year. At least, the government hopes for a turn in a positive direction. “The IEA figure of $11.8 billion is a gross underestimate — by about 2-3 times, since it does not take into account income from exports through pipelines, deliveries through the «gray» diagrams and so on, — says Natalya Milchakova, a leading analyst at Freedom Finance Global. — The Ministry of Finance expects that budget revenues by the end of 2023 will exceed the target by 2-3%, respectively, officials also expect an increase in raw material revenue.