RusEnergy

Oct. 10, 2006 Kommersant by Dmitry Butrin and Alexey Shapovalov - Russia’s Economic Minister German Gref has presented a concept of an independent pricing system for Russian oil at a meeting with President Vladimir Putin. The Russian Fuel and Energy Exchange in St. Petersburg and futures trading of Russia’s REBCO crude oil are to become key elements of Russia’s pricing independence from North Sea’s Brent brand.
The meeting with Vladimir Putin dedicated to prospects of Russian oil trade was not announced beforehand. The economic development and trade minister presented a comprehensive plan for a revolution of world oil prices and transferring to independent pricing for oil export from Russia. The price on the Urals brand is currently calculated as a derivative from the Brent oil and BFO blend which is extracted at three deposits in North Sea. German Gref’s performance was largely an impromptu, and President Vladimir Putin obviously was not always getting him right. An ITAR-TASS correspondent who was present at an open part of the session reports that the president endorsed am idea to call futures contracts on Russian oil exports REPKA [turnip in Russia] and praises the name of the national blend.
In fact, the contract which will be listed at the NYMEX from October 20 calls futures on Russian oil REBCO (Russian Export Blend Crude Oil).
The Russian Energy Futures consortium, the joint venture of the NYMEX and the Crown Resources former trading company (now Expertica), have been drawning up futures on REBCO since 2005. The succor of the NYMEX will help the Russian Economic Development Ministry make a solid chain out of separate links of Russia’s oil independence from the Urals pricing system.
Crown Resources launched plans to replace Urals with REBCO back in 2001. Now they have received state backing. After trading on REBCO has become buoyant, this contract will be listed at other exchanges, mainly at the Russia Fuel and Energy Exchange (RFEE). After Vladimir Putin met St. Petersburg Governor Valentina Matvienko, it became clear that the RFEE, which was registered in Khanty-Manskiysk last month, would move to St. Petersburg. Even the building has been found for it. The exchange is to be located in the building of the old St. Petersburg exchange where the Naval Museum is now situated.
German Gref’s report says that the Russian Fuel and Energy Exchange in St. Petersburg will become an element in the chain of permanent Russian oil trading in the world. The REBCO contract has it that by 2008 the futures will be listed not only at the NYMEX and CME Globex but also in London, and trading is also possible at an exchange in South East Asia. Russia is now in talks with Azerbaijan and Kazakhstan on their participation in the RFEE. Quite possibly, the Russian Energy and Industry Ministry will try to convince the CIS neighbors to trade their oil, which is also stitched to Brent, with the RFEE or on their own. The Economic Development and Trade Ministry now views the Russian Fuel and Energy Exchange only as a floor for trading oil products. German Gref says deals on black and diesel oil will start at the exchange before the end of 2007. The main reason for the independence of Russian oil export contracts from Brent is an anticipated price hike. Extraction and trade volumes of Brent are now far lower than Russian supplies of Urals to the international market. The Urals pricing is not transparent, Alexey Kuzminichev, one of the creators of Russian Energy Futures, says. Ultimate prices on Urals are now set at the Platts and Argus agency on the basis of the so-called market reports which describe Urals trading contracts, based on Brent prices. The difference between Brent and Urals prices, or the differential, almost always hovers around $0.2-0.6 per barrel which is explained by the poor quality of Russian oil.
Oleg Kirsanov, editor-in-chief of the Russian office of Argus, told Kommersant: “I can’t say why but the Russian government is sure that after the contract is launched the price on Russian oil will rise. Perhaps, pricing of Brent and Urals will be separate some day, but it will not mean that Urals will be more expensive. There will be more chances for gerrymanders at the market. Jorge Montepec, marketing director at Platts, said: “It is too early to draw any conclusions. It took three or four years to launch Brent to make it attractive.” Analysts of Russian officers of Morgan Stanley and Goldman Sachs declined to comment on the news, saying that the outlook of the independence of Russian oil from Brent is still unclear.
Non-supply futures on Russian oil have been traded at the RTS exchange since this summer. Yet, the turnover is still paltry. Oil companies say that a contract is not attractive to major international traders if there are no actual oil supplies behind them. But the first deals with the REBCO, futures contracts on oil supplies from Primorsk, will appear at Chicago’s CME Globex trading system on October 23. No matter how prices behave on the first trading day, the fact will remain – Russia oil will be traded as an independent produce for the first time. The Russian Fuel and Energy Exchange is going to start quoting REBCO futures by the end of 2007.