Russian oil has fallen to about $38 per barrel against Brent price of $78

Bloomberg writes about it.

According to data provided by Argus Media, Urals, the main grade of oil sold by Russia, was at $37.80 per barrel at the Baltic Sea port of Primorsk. Global benchmark Brent traded at $78.57 on the same day.

It is difficult to understand how Russia can react to such low levels. On the one hand, it needs all revenue it can get to finance the war in Ukraine. But too much of a drop could force Moscow to respond by cutting output, something it hasn't ruled out in the past.

On December 5, the European Union nearly halted seaborne imports of crude oil from the country, killing what had historically been Russia's main export market. At the same time, the bloc united with industrialised countries of G7, setting restrictions on the prices of supplies from Russia. Anyone who wanted access to Western services—including industry-standard insurance, as well as a host of other things—could only do so if they paid $60 or less.

The key price driver was likely to be the loss of the European market, as this left Russia at the mercy of a tiny group of large buyers, especially China and India. And because tankers have to sail thousands of miles further to deliver cargo from western Russian ports to these buyers, freight costs have skyrocketed. This forced price per barrel to be lower to compete with supplies from the Middle East.

Argus provides data to the International Energy Agency, an adviser to developed countries that monitors Russian prices for G7. The group is reviewing its cap and will also introduce it for refined fuels from February 5. Argus data has also been used in the past to help Moscow calculate tariffs on oil exports.

Russian ESPO crude, named after a pipeline from East Siberia, continues to trade just above the upper limit, Argus data shows. The distance needed to deliver it to buyers is much shorter, which likely makes it easier to find tankers willing to ship it to the nearest buyers beyond the limit set by G7.

According to Bloomberg, oil supplies from Russian Federation during December fell to the lowest level for 2022.