Structural Changes Alter Urals and OPEC Fundamentals

BMI View : We examine our price forecasts for the Urals and OPEC baskets amidst structural changes in the Russian and OPEC markets. The Iranian negotiations have been a crucial element behind Brent's recent trading, but (if a successful conclusion is reached) they will also disturb OPEC's trading patterns and threaten to push the benchmark below US$100/bbl. Russia's pivot towards the Asian markets combined with Rosneft's consolidation of Russia's supply culminated in the US$85bn supply agreement with China and the diversion of crude oil East. This is a long term strategic shift for Russia, which underpins our view that the spread between Urals and Brent will narrow reflecting tighter supplies of Russian crudes to European markets.

We maintain our 2013 and 2014 Brent and WTI price forecasts, seeing a number of factors - from Iranian negotiations to the new Keystone Gulf Pipeline opening in early January- that strongly reinforce our long held view of lower Brent and higher WTI as we go into Q1 2014 ( see "Oil Price Outlook - Narrowing Spread In 2014 On Ameliorating Cushing Flow", 30 October).

In this month's Oil Price Outlook we turn our attention to our forecasts for the Urals and OPEC baskets. Over an extraordinary 2-month trading period (July-August 2013) we saw Ural's break its usual pattern of trading at a discount to Brent into trading on par, and at times, at a premium. We believe structural changes in the Russian oil trade have caused this break with the traditional pricing pattern. Our forecasts anticipate an even thinner spread between Brent and Urals for 2014 as the Brent price retracts at a faster pace than Urals.

Domestic Refiners Increase Crude Demand
Russia - Share Of Domestic Crude Use In Total Crude Production (mn b/d)

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This article is tagged to:
Sector: Oil & Gas, Commodities
Geography: Global

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