Russia’s state energy giant is close to striking long-term deals to sell substantial supplies of oil, a sign that Moscow can continue to count on petroleum exports to fund its war on Ukraine.
Rosneft Oil is arranging the sales through a tender, a type of auction, that is aimed at locking in buyers for millions of metric tons of crude and refined products over the next year, people familiar with the sale said. The prospective buyers are trading firms competing to send the oil to end users in Russia’s biggest export markets, such as China, India and Turkey.
The tender is likely to be the largest since the war began, according to some of the people familiar with the sale. It could also be one of Rosneft’s biggest in recent years and involves a significant portion of the company’s output, one of the people said.
There has been ample bidding demand, some of the people said. That is a stark turnaround from a year ago, when Rosneft failed to find buyers in a tender in the months after the start of the Ukraine war.
The precise volume of crude and products due to be awarded in the auction couldn’t be determined. The sale could conclude in the coming days, some of the people said—though the process has taken longer than prewar tenders, and there is no guarantee that deals will be struck.
The tenders are seen as a more efficient way to sell large volumes of oil rather than by the individual boatload.
Rosneft is the heartbeat of Russia’s economy and a major contributor to the budget through taxes, export tariffs and dividends. Its ability to pump oil to global markets at the highest possible price is vital to the Kremlin as Russia fights a costly war that has taken a toll on its economy.
Rosneft spokespeople didn’t respond to requests for comment.
Strong supply of Russian oil has also been a factor in keeping global oil prices low in recent months.
The vast market for Russian oil has moved outside mainstream trading and shipping networks since the Ukraine invasion. Trading companies based in non-sanctioning countries in the Middle East and Asia that were little known before the war have emerged to handle crude and fuels. Western commodity houses, based in Switzerland and London, mostly wound down their operations.
Often, these upstarts do so through shell companies and other structures designed to conceal their involvement, as well as their ultimate ownership. These traders move much of the petroleum on ships in the so-called shadow fleet of tankers that ferry oil from countries subject to Western sanctions.
The Russian government holds a large minority stake in Rosneft, one of the world’s biggest oil-and-gas producers, via a state-owned holding company. Igor Sechin, an ally of Vladimir Putin since the Russian president was a municipal official in St. Petersburg in the early 1990s, is Rosneft’s powerful chief executive.
Rosneft has for years held auctions to regulate the flow of oil and establish prices that could underpin sales through long-term contracts. Before the war, the company would look to award a portion of its crude exports in twice-yearly auctions. It would allocate products such as diesel and gasoline in a jumbo, once-a-year tender.
The auction adds to evidence that Rosneft and Moscow have had some success in countering the challenge posed by the invasion and subsequent energy sanctions. The company reported an almost 10% rise in profit in 2022, before accounting for taxes, interest payments and depreciation. Profits rose 25% in the first quarter of this year compared with the previous three months.
For Russia, that has helped to ensure that a dire economic outlook didn’t turn into a disaster.
The sanctions combine an embargo on Russian oil in Europe, Moscow’s traditional market, with an attempt to cap the price of sales to other regions. Crafted by the U.S. and its allies, they aim to deprive the Kremlin of revenue while keeping Russian oil flowing at a low price, and thus preventing a leap in world energy markets.
U.S. officials say the price cap, an untested policy before it began to take effect in December, has achieved those twin goals. Some traders and former Russian energy executives say this assessment is based on data that fail to capture the opaque ways in which money flows through Russia’s oil market.
All but severed from Europe, Russia has funneled oil to Asia, the Middle East and Africa. It appears to be doing so at increasingly advantageous prices.
In the tender, Rosneft is on track to agree to crude prices with a relatively narrow discount to global benchmarks, some of the people said. For Russia’s flagship crude, Urals, that discount ballooned after the invasion.
Revenues from taxes and tariffs on oil and gas accounted for about 45% of the federal budget on the eve of the invasion, according to the International Energy Agency. Oil grew all the more important to the Kremlin when Russia turned off most gas exports to Europe. Unlike piped gas, oil could be diverted to new markets.
The finance ministry said oil-and-gas revenue halved in the first five months of 2023 from the same period last year due to a drop in gas exports and the price of Urals. The ministry said it expects state oil revenue to recover in the second half of the year, in part because of a new tax regime on the industry.
“In general, the situation is absolutely stable,” Putin told a televised meeting in May after Finance Minister Anton Siluanov said oil revenue was shrinking.
The current auction has unfolded over several weeks. At least some of the talks between Rosneft and the traders took place in person in Moscow, some of the people said.
Energy News Beat