Competing Russian benchmark to move into Brent’s turf in 2016
December 9, 2015, 12:14 pm

With oil prices at lows not seen since 2009, the Kremlin said on Tuesday that it would have to make additional spending cuts [Xinhua]

“We’ve set the rules. We’re holding test trading. All conditions are in place to launch the benchmark in 2016,” he said.

It is expected to drive up the price for Russian oil and end its dependence on Brent pricing, putting a spotlight on the methods used to put a value on the world’s most important commodity.

This may also result in trading Russian oil in rubles.

The plan to create a Russian oil benchmark has been in the making for several years.

Currently, Russian crude from the Urals region and ESPO (crude transported through the ESPO pipeline) is traded cheaper against Brent due to the lack of a transparent pricing mechanism and guarantees of delivery.

With the Brent field producing less and less oil every year, analysts expect that in the next few years the Brent benchmark, a crucial metric for global oil prices, will contain no actual Brent at all.

According to Russian officials, Russian benchmark crude would make domestic-produced oil grades more liquid and expensive.

To be recognized as benchmark in the international market, Russian crude has to meet the following three requirements.  It has to be traded at clear and transparent prices; its deliveries have to be guaranteed; the trading volume has to reach not less than 10-15 million tons per year, or three million barrels a day.

Meanwhile, Brent is also facing stiff pressure from the EU continuing with an anti-trust probe into the trading activity that sets the price.

Price publisher Platts was told by EU regulators to redact business secrets from documents obtained during antitrust raids in September this year.

Platts monitors the activity in the market to calculate the price of Brent on a daily basis.

Benchmarks like Brent provide a stable price point against which oil from anywhere around the world can be traded at a premium or discount.

With oil prices at lows not seen since 2009, the Kremlin said on Tuesday that it would have to make additional spending cuts. Oil prices fell below $40 a barrel, adding further strain on the already suffering Russian economy.

TBP and Agencies