Discounts on Russian oil approached historical highs, but tax breaks help exporters - Reuters
Kyiv • UNN
Discounts on Russian oil at export terminals again approached historical highs, reducing margins and leading to losses. More than half of Russian oil companies are eligible for zero or reduced mineral extraction tax rates.
Discounts on Russian oil at export terminals have again approached historical highs, putting pressure on exporters' profits amid weak global oil prices, according to Reuters calculations, UNN writes.
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Western sanctions over Russia's military actions in Ukraine have forced Russian oil companies to sell oil at significant discounts, reaching $20 to $30 per barrel below the price of Brent crude in December – the largest gap in Russian ports since the beginning of 2022, according to Reuters data.
Larger discounts have reduced margins, leading to losses for some suppliers. Nevertheless, many firms remain profitable due to government tax breaks, according to Reuters data.
"Revenue in the production segment on average remains positive after covering taxes, production and transportation costs. Some oil projects are indeed 'at a loss', particularly due to the complexity of extraction," said Kirill Bakhtin of BCS World of Investments.
According to analysts, preferential mineral extraction tax (MET) rates are crucial for maintaining profitability. According to Reuters estimates, more than half of Russian oil-producing companies are eligible for zero or reduced MET rates, which helps them cover costs and finance field development.
Reuters calculations show that companies benefiting from zero MET rates (about 20% of producers) generated a trading profit of approximately $20 per barrel at Urals oil prices in December. Export margins also vary depending on the destination country: deliveries to Turkey can cost $10 per barrel more than Urals deliveries to China.
China mainly imports ESPO Blend crude oil, which trades at a premium of $3-4 compared to Urals and is supplied from the port of Kozmino in the Far East, which reduces transportation costs for Russian exporters.
Companies facing full MET rates, expensive production, and complex logistics can operate at a small loss of up to $5 per barrel, Reuters calculations show. However, most high-cost producers tend to benefit from reduced MET rates. Analysts note that owning a fleet of vessels and the location of facilities also negatively affect profitability, as logistics costs continue to reduce profits.