Experts Discuss Creating a New Pricing Mechanism for Russian Oil Exports

14 april 2016

The Analytical Center in conjunction with the non-profit partnership Russian Gas Society have held a round table on the organization of oil export on the Russian commodity exchanges, during which experts discussed how to improve the pricing mechanism and create new liquid Russian benchmark crudes that take into account delivery terms and the quality of raw materials in order to create a new pricing benchmark.

The First Vice President of the Saint Petersburg International Mercantile Exchange CJSC (SPIMEX) Mikhail Temnichenko talked about a project to create a new pricing mechanism for the Russian export oil (a benchmark) which the Exchange had been implementing in cooperation with the Federal Antimonopoly Service, the Ministry of Energy, the Bank of Russia and representatives of a number of oil companies. “The basic idea behind the new pricing mechanism is to start offering a new deliverable exchange-traded contract - oil futures - on the Russian commodity exchange to allow for Russian oil to be quoted directly based on how the market moves, without said price being pegged to any other oil flows in other parts of the world,” the expert said. Mr. Temnichenko noted that there are three stages to the implementation of the benchmark: firstly, putting regulations and a technological platform in place; secondly, preparing a primal liquidity pool, and, finally, developing the market. “At the moment we are done with stage one: a road map has been developed, general delivery terms for exporting Russian oil have been created and agreed with representatives of leading Russian oil companies, the rules for commodity exchange trading have been approved and registered,” the expert concluded. In addition, draft specifications for deliverable futures for the Russian export oil have been developed and trial trading started. In the meantime, future traders are undergoing theoretical and practical training, the specialist explained.

At the moment we are done with stage one: a road map has been developed, general delivery terms for exporting Russian oil have been created and agreed with representatives of leading Russian oil companies, the rules for commodity exchange trading have been approved and registered.”

Mikhail Temnichenko

First Vice President

Saint Petersburg International Mercantile Exchange CJSC

Experts believe that if Russia were to have its own benchmark crude it would give Russian oil companies a unique opportunity to price their export oil while using their own tried and true delivery processes and enjoying flexibility in selecting contractors. Russian oil companies would also get a new way to influence global oil pricing.

Tamara Safonova, the CEO of Independent Analytical Agency for the Oil and Gas Sector LLC talked about improvements that are currently being made to the pricing mechanisms and about the state of play with the creation of Russian benchmark crudes. According to her, the system of publishing price indicators for the Russian oil may include indicators of exchange transaction prices, indicators of off-exchange transaction prices and prices for export alternative indices. The benefits of publishing Russian oil prices, according to the expert, include information security in the energy sector, development of a system to monitor oil prices and the ability to use Russian commodity prices when trading with oil importing nations in the Customs Union, BRICS and the Asia-Pacific region.

Participants in the round table included representatives of federal executive authorities, energy companies, the commodity exchange, expert organizations, and the academic community.

See also:

13th April, 2016 - Russian Federal Anti-Monopoly Service plans to attract small oil produces to take part in oil export trading

15th April, 2016 - Experts discuss creation of field testing sites for oil and natural gas production

Program

List of Participants