Oil at $4 a Barrel? That’s the Price Belarus Offered Russia

(Bloomberg) -- Belarus reached an agreement with Russia’s biggest oil producer to buy crude this month with a premium after the government said it shouldn’t have to more than $4 per barrel as a global oil glut depresses prices.

The government of the former Soviet republic has sought to buy 2 million tons -- equivalent to almost 15 million barrels -- in April from neighboring Russia but was refusing to pay any premiums to suppliers. Russian producers to largely cut off supplies earlier this year amid a pricing spat, forcing Belarus to import crude from as far as Norway and Azerbaijan to feed its refineries.

“The result of this position is the price at which we will be buying crude in April from Russia -- near $4 per barrel,” Prime Minister Sergey Rumas said earlier Thursday in Minsk. His comments were reported by local media and confirmed by his press service. That’s less than a 10th of what it paid in January.

Russia has “no problems” selling crude in April and is ready to supply to Belarus at market price, Energy Ministry Alexander Novak said on the Echo Moskvy radio station. That price doesn’t include export duties, as the countries are partners in an economic union, but a premium of $5 a ton had been agreed earlier, he said.

Russia’s Rosneft PJSC signed supply contracts with Belarus refineries with that premium, RIA Novosti news service reported later Thursday. The base level, which wasn’t disclosed, has traditionally been the Russian export netback price, while the premium is equivalent to $0.68 a barrel based on a conversion ratio of 7.33 barrels per ton.

Oil prices have slumped as the coronavirus pandemic undercuts oil demand and a price war between Russia and Saudi Arabia adds to the oversupply.

“April is a perfect moment for Belarus to reach a deal with the Kremlin,” said Igor Yushkov, an analyst at the National Energy Security Fund in Moscow. The current export duty, which Belarus doesn’t pay, is about $7 a barrel. If prices stay low, the export duty may drop to zero next month, meaning Belarus would lose that discount, according to Yushkov.

Russian producers have requested space in the national pipeline system to ship about 1 million tons of crude to Belarusian refineries this month, quadruple the volume they sent in March, but they haven’t yet provided the documents needed to start those shipments, operator Transneft said earlier this week.

(An earlier version of this story was corrected to reflect a premium of $5 per ton.)

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