Russian Oil Plunges To $34 As US Sanctions Spark Huge Discounts

Russia's flagship Urals crude oil slumped to about $34 a barrel in a signal that US sanctions on Moscow are having an impact.

The grade in the Baltic Sea slumped to $34.82 a barrel on Friday, while in the Black Sea it fell to $33.17, according to prices provided by Argus Media. Dated Brent, a yardstick for international prices, stood at about $61, after falling far less than Russian supplies this year. 

President Donald Trump's administration announced wide-ranging sanctions on Russia's top two oil producers in October. While the step didn't halt Russian flows, it did make them more challenging. India in particular looks set to receive fewer barrels from Moscow next month.

While Russia maintains that discounts will start narrowing within months, a long-lasting price slump would bite into the Kremlin's access to petrodollars to fund its war in Ukraine, given that oil and gas accounts for about a quarter of the budget.

The discounts for Urals work out at an average of about $27 a barrel at point of export, according to Argus. By the time the oil gets to India, that discount narrows to about $7.50. It's not clear how much of the delivery spread ends up in Russian hands.

The cheaper the oil becomes, the greater the financial incentive there is for refineries to overlook sanctions to buy it — a dynamic that in the past has seen Russian prices normalize after an initial decline.