OREANDA-NEWSStarting January 1, 2020, the new requirements of the International Maritime Organization of the United Nations come into force - the sulfur content in marine fuel will be reduced from 3.5 to 0.5% to reduce harmful emissions into the atmosphere. Urals, the most widespread oil in Russia, is more sulfur and dense than the Brent reference brand, so it will be traded on the world market with a greater discount to the standard than in the last five years, said Fitch junior director Vyacheslav Demchenko. He estimated the average Urals discount to Brent without taking into account the effect of changing IMO rules at $ 1.3 per barrel.

“The effect of the change in IMO rules will begin to be observed already in the fourth quarter of 2019, when market participants will begin to contract oil supplies taking into account the future change in the rules for the concentration of sulfur in bunker fuel”, the expert said. As a result of tightening IMO rules in the first months of 2020, the discount to the price of Urals may increase to $ 1–7 per barrel. Upon reaching an average discount of $ 3.5 per barrel to the Brent price level (expected at $ 60 per barrel), Russia could lose about 500 billion rubles tax revenues from mineral extraction tax, mineral extraction tax and duties on oil and oil products, since all tax calculations are tied to the cost of Urals grade oil, adds Demchenko.

Almost three-quarters of Russian oil exports to Europe (more than 50% of all oil exports from Russia) go at quotes close to Urals, the rest is either deliveries through the ESPO pipeline to Asia, which are stimulated by the state, or offshore production, which is taxed at interest rates and is not tied to Urals, told the Russian media a consultant to relevant fiscal departments. Accordingly, a change in the Urals discount to Brent should not be a reason for adjusting taxation, since it will almost equally affect the budget and companies, he concludes.