A decline in global oil prices combined with rising discounts on Russian export grades has led to financial losses for some suppliers, Reuters reports. At the same time, many companies remain profitable due to tax incentives.
According to the agency, discounts on Russian oil at export terminals approached historic highs in December amid weak global prices and increasing price pressure. As a result, some suppliers have slipped into negative territory.
Reuters notes that the price gap between Russian oil and Brent crude reached $20–30 per barrel in December — the widest spread since early 2022. While growing discounts have reduced margins, tax benefits have helped several producers maintain positive results.
“On average, the upstream segment remains profitable after taxes, production and transportation costs. However, some projects are indeed operating at a loss, partly due to the complexity of extraction,” said Kirill Bakhtin, Head of Russian Equity Research at BCS World of Investments, as quoted by Reuters.
Analysts cited by the agency emphasize the crucial role of reduced mineral extraction tax (MET) rates. Reuters estimates that more than half of Russia’s oil producers qualify for zero or reduced MET rates, allowing them to cover costs and continue investing in development.
Agency calculations show that around 20% of producers benefiting from a zero MET rate earned roughly $20 per barrel in December on Russia’s main export grade, Urals.
Profitability also depends heavily on export destinations. Supplies to Turkey can fetch up to $10 per barrel more than Urals shipments to China. Reuters points out that China mainly imports the premium ESPO grade, which trades at a $3–4 premium to Urals and is shipped from the Far Eastern port of Kozmino, reducing transportation costs.
At the same time, companies facing higher taxes, costly production and complex logistics may incur losses of up to $5 per barrel. Nevertheless, many high-cost producers remain afloat thanks to reduced MET rates. Ownership of tanker fleets and geographic location also play an important role, as logistics costs continue to weigh on margins, analysts told Reuters.
Earlier, Deputy Prime Minister Alexander Novak said the government expects discounts on Russian oil to narrow as the industry adapts to sanctions and restructures logistics, a process that could take one to two months. In October, the United States added Lukoil, Rosneft and their subsidiaries to its sanctions list, contributing to reduced oil shipments to Turkey, China and India.
Meanwhile, Bloomberg reported in December that Russia’s seaborne oil exports reached their highest daily average since May 2023. Due to delays in tanker unloading, floating storage volumes increased again, with large numbers of vessels accumulating off the coasts of India and China.
Moscow continues to view the sanctions as illegal.
