Russia shrugs off Saudi oil discount

RUSSIAN officials said Saudi Arabia would not be able to maintain the discounted crude prices offered to refiners in Eastern Europe as the nation toned down its criticism of oil shipments from the biggest Opec producer.

Saudi Arabia has priced its oil at a six-year low for Europe after starting to ship crude to traditional Russian markets such as Poland.

The discounted crude “is a temporary situation and it won’t work for a long period”, Nikolay Tokarev, CEO of Russia’s staterun oil pipeline operator Transneft OJSC said in an interview on Friday.

Oil executives in Russia, which ships almost 70% of its crude to Europe, last month criticised Saudi Arabia’s strategy even before it dropped its December price for the northwest of the continent to its lowest since February 2009.

Still, while the Russian central bank warned last week that increased competition from the Middle East may create economic risks, energy minister Alexander Novak was more sanguine on Friday.

“If more or less one oil cargo is added or drops off, there’s no need to turn it into a sensation,” Novak told reporters in Moscow.

Russia was increasing crude exports to the EU, including through Transneft’s Druzhba pipeline that feeds Eastern Europe, Germany and the Baltic states, Tokarev said.

Eastern European refineries, mainly designed with Soviet technology, would need investment to process Saudi crude, he said.

“There is no reason, from an economic point of view, to change technology for the benefit of some sort of political ambition,” Tokarev said.

Saudi crude was heavier and more sour than the Russian Urals oil traditionally processed in Eastern Europe, said Michael Nayebi-Oskoui, senior energy analyst for Middle East and South Asia at Texas-based Stratfor. The discounts being offered were not big enough to offset the extra costs of a largescale and long-term switch from Russian crude, he said. — Bloomberg