Until recently, Russia did not have an oil and petrochemical exchange, although the need for one was obvious. Russia currently produces over one fourth of the world's commodities traded on exchanges, but it uses traditional global tools to sell them. In fact, it sells commodities through Western mechanisms, having no influence on the terms. The global energy market is organized so that commodities exchanges are single institutions, mainly in developed countries that do not produce energy resources.
Moreover, Russia does not have transparent mechanisms for setting prices on exported crude. At present, the price of the Russian brand Urals is not set during trading, but is pegged to the price of the U.S. brand Brent. The Urals price is calculated with a discount of $5-7 per barrel, which means that the price of Russian crude is lower. The formal reason is its poorer quality and risks related to its supply to key consumers.
The difference in prices seems to make sense. However, the situation puts both Russian oil exporters and the Russian government at a disadvantage. Moreover, this price-setting system is not based on the balance of demand and supply of Russian oil, so it cannot be considered market-oriented. This dependence on the Brent price robs Russia of the opportunity to find out the true market price of its oil and to influence global energy prices.
As Russia positions itself as a leading energy power and comes up with major energy security initiatives, this situation does not correspond to the growing importance of Russian energy on the global market.
The problem of the Russian economy's extreme dependence on global prices remains relevant too. Recently, the Russian Economic Development and Trade Ministry downgraded its forecast for Urals prices in the country's social and economic development scenario, from $61 to $55 per barrel in 2007 and from $56 to $53 per barrel in 2008. In fact, the recent fluctuations of oil prices have been the biggest instability factor in the domestic economy.
So Russia needs an opportunity to influence oil prices in order to corroborate its claims for leadership on international energy markets and to achieve greater stability of the national economy.
The initiative to set up exchanges that will sell Russian energy has been discussed for several years. President Vladimir Putin in his annual state of the nation address proposed to set up an exchange trading in different commodities in rubles. There have already been some shifts. Last summer, the RTS launched commodity-pegged futures for Urals. And now the first futures for petrochemicals, notably, diesel fuel, have finally begun.
"This is Russia's first future delivery contract for petrochemicals that will be useful for all diesel consumers and producers, for oil traders and oil companies," said Oleg Safonov, the RTS' CEO. The contract provides insurance against risks related to price fluctuations, reduces the cost of attracting funds and helps to plan economic activities.
In the future, the RTS hopes to broaden the range of its products and to launch futures for another three types of petrochemicals, jet fuel, petrol and fuel oil. By the end of 2007, it plans to cover the entire range of petrochemicals.
This is to a large extent virtual trading, because it is done without physical supply. Settlements are made in rubles and are based on prices calculated by Platts. This means that the price of Russian oil is still pegged to prices on other exchanges. It is a long way until the market price of Urals becomes fair. To organize real exchange trading with Russian oil, it is necessary to introduce a contract that will envisage real delivery. This requires solving numerous problems: Urals has to be standardized, the necessary exchange infrastructure must be built, warehouses certified, an agency has to be set up to calculate oil and petrochemical prices and encourage producers to bring their products to the exchange.
Nevertheless, the launch of diesel futures is another step toward setting up a commodity exchange that will sell oil and petrochemicals for rubles. Given that Russia has not had any mechanism for setting a market price for oil, the appearance of any price indicator is an achievement. With certain efforts by the government and market players, it can encourage further development of energy exchange trading in Russia.
The opinions expressed in this article are those of the author and may not necessarily represent those of RIA Novosti.
