Hungary and EU Oil Perspective

Today’s Russian oil exports reflect the country’s waning influence on world politics and the economy. China and India are driving an unprecedented approximately 35% discount on purchases of Russian Urals oil, even though the historical spread has never exceeded $5, not even during the 2014 Crimean crisis. Oil traders realize that Russia has limited sales markets and they have more purchasing options than Russia has buyers. Additionally, Russian oil tankers average 35 days to transport oil from Russia to East Asia, compared to approximately seven days to western Europe. For this reason, historically, only 39% of Russian oil shipments are destined for Asia, while 53% of Russian oil is destined for Europe.

Russia is particularly affected by this margin pressure because it its oil production costs ret relatively high costs compared to other large producers and Russia has some of the highest break-even points of any oil producing nation. Even the Russian energy ministry has reduced its long-term oil output predictions due to Russia’s upstream industry’s historical reliance on Western technology, coupled with the loss of Russia’s once-dominant market, and its declining economic weight. There is no denying that, as many energy experts predicted, Russia is losing its position as a global energy behemoth and that its standing as a once-reliable provider of commodities has irreparably deteriorated.

For more information, please contact Agnes Török: agnes.torok@trade.gov.