Moscow Downplays Low-Price Saudi Oil

Moscow Downplays Low-Price Saudi OilMoscow Downplays Low-Price Saudi Oil

Russian officials said Saudi Arabia will not be able to maintain the discounted crude prices offered to refiners in Eastern Europe, as the nation toned down its criticism of oil shipments from the biggest OPEC producer.

Saudi Arabia has priced its oil at a six-year low for Europe after starting to ship crude to traditional Russian markets such as Poland, Bloomberg reported.

The discounted crude “is a temporary situation and it will not work for a long period,” Nikolay Tokarev, chief executive officer of Russia’s state-run oil pipeline operator, Transneft OJSC, said in an interview on Friday.

Oil executives in Russia, which ship almost 70% of their crude to Europe, last month criticized Saudi Arabia’s strategy even before it dropped its December price for the northwest of the continent to lowest since February 2009.

Still, while the Russian central bank warned last week that increased competition from the Middle East may create economic risks, Energy Minister Alexander Novak was more sanguine on Friday.

“If more or less one oil cargo is added or drops off, there is no need to turn it into a sensation,” Novak told reporters in Moscow.

"Russia is increasing crude exports to the European Union, including through Transneft’s Druzhba pipeline that feeds Eastern Europe, Germany and the Baltic states," Tokarev said. "Eastern European refineries, mainly designed with Soviet technology, would need investment to process Saudi crude."

Tokarev said there is no reason, from an economic point of view, to change technology for the benefit of some sort of political ambition.

"Saudi crude is heavier and more sour than the Russian Urals oil traditionally processed in Eastern Europe," said Michael Nayebi-Oskoui, senior energy analyst for Middle East and South Asia at Texas-based Stratfor.

"The discounts being offered by the Saudis are not big enough to offset the extra costs of a large-scale and long-term switch from Russian crude."

Nayebi-Oskoui said it does not mean that the regional refineries cannot use Saudi volumes.

“They will just be less profitable and over time require longer periods of maintenance,” he said.