The plummeting prices of Russian oil after US sanctions against “Rosneft” and “Lukoil” have hit the finances of oil companies, which this year have already faced a 2-3 fold drop in profits.
At the current price of Urals oil, oil companies are struggling to cover capital costs at a number of fields, two sources in extracting companies told Reuters.
According to Argus data, last week the main export grade of Russian oil was sold abroad at $34-36 per barrel – a record low since the pandemic, and discounts on it have reached their maximum since the beginning of the war – $23-25 per barrel. For some batches for Chinese refineries, discounts reached $35, Reuters sources said.
Prices around $40 per barrel of Urals are barely enough to cover the costs of oil extraction and its pumping to the port, according to estimates of experts interviewed by Reuters. “Taxes can be estimated at 65%, the rest is $14, which fully covers the costs of $3-4 per well and $5-7 for oil transportation. The possibility of covering exactly capital costs is in question, but flexibility in time can be applied to capital costs,” explains BCS analyst Kirill Bakhtin.
Some fields, in remote regions and with expensive oil extraction, could even become unprofitable. “The mature deposits of the Volga region and Western Siberia with low operating costs, large reserves and proximity to the pipeline are in the ‘plus'”, says analyst of the Institute of Energy and Finance Maxim Sheverenkov.
“The oil extraction industry is sliding into a crisis, and the latest sanctions will accelerate this process,” says Craig Kennedy, a former vice president of Bank of America and now an expert at the Davis Center for Russian and Eurasian Studies at Harvard. There are not many buyers for pre-sanctioned oil, he explains: “If you look at the figures, then from 1.6 to 2.8 million barrels per day remain without firm demand. And now large volumes of unsold oil are piling up at sea” (The Moscow Times).
