Crude futures

Exchange trading of Russian export oil will be transferred to St. Petersburg

The Ministry of Economic Development signed an agreement yesterday with the New York Mercantile Exchange (NYMEX) and the government of St. Petersburg on the organization of the first International Commodity Exchange in Russia on the site of this city, to which futures trading in Russian oil REBCO (Russian export blend) is planned to be transferred in the future crude oil). The signing took place in a very solemn atmosphere; the head of the Ministry of Economic Development and Trade, German Gref, and the President of NYMEX, James Newsam, put their signatures on the document. But, despite this, the new document is more reminiscent of an ordinary declaration of intent, since it does not provide for any specific steps to create market instruments for futures trading.

According to Mr. Gref, the launch of trading will take place in three stages: in October of this year, trial futures for petroleum products will be launched, next year REBCO trading will be transferred from NYMEX to the St. Petersburg exchange, and in 2009 it is planned to open trading in the entire line of oil and petroleum products . The government is ready to lure oil workers to the new exchange both with tax benefits and with the help of administrative pressure. “We ourselves... will use our influence on the boards of directors (of state oil companies - Ed. ),” Reuters quotes Mr. Gref. “Plus, introducing amendments to the legislation will make the transition to quotation on the stock exchange in St. Petersburg the basis for taxation.” According to him, “an agreement has already been reached with Russian oil workers that certain volumes of oil and petroleum products will pass through the exchange (in St. Petersburg - Ed. ).”

German Gref was inspired to create futures trading for Russian oil two years ago, when Russian President Vladimir Putin, at one of his meetings, drew the government’s attention to the low price of Urals in relation to the standard North Sea grade Brent. And since the ministry was well aware that it was impossible to increase the price of Russian oil by improving quality (after all, this de facto meant introducing a ban on the export of high-sulfur oil, which many companies produce), it was decided to change the principle of price formation. Now, to calculate the price of Urals, oil traders apply a discount scale to Brent, from which, according to current calculations by the Ministry of Economic Development and Trade, the budget loses up to $4 billion. The Ministry of Economic Development and Trade has proposed introducing a new futures (trading contracts for the sale of oil with deferred delivery) for Russian oil on the world exchange. For this purpose, a new brand of Russian oil was invented - REBCO. Later, agreements were reached with NYMEX to create a new futures contract with the supply of Russian oil on FOB (free on board) terms in the amount of 730 thousand barrels from the port of Primorsk. It launched on NYMEX last October. However, since then no contract has been concluded. As the organizers of the trades explain, this is caused primarily by the reluctance of oil companies, accustomed to working with their own trading system, to use the new tool. Several times the Ministry of Economic Development and Trade held meetings with the participation of representatives of oil companies, at which officials tried to force the companies to work with REBCO, but there was no result. Traders say that working with the new instrument is inconvenient due to the fact that volumes expected to be too high for NYMEX, and with delivery.

As a source at Expertica (NYMEX’s Russian partner in launching REBCO) explained to Vremya Novostey, in order to transfer this futures to St. Petersburg, it is necessary for this instrument to become liquid on NYMEX. “We are now doing a lot of outreach work among oil company employees, so that by mid-2008, when the transition to St. Petersburg is planned, we will be able to make it a working tool.” If the transition is still possible, trading at the first stage will take place both on NYMEX and on the St. Petersburg site. At the same time, he could not explain what the terms of contracts for Russian oil would be. “The terms of oil supplies will have to be worked out separately by the organizers and shareholders of the exchange; no such decisions have been made yet,” said an Expertica representative.

Anna GORSHKOVA