The current surge in demand for Russia’s Urals oil blend, triggered by an EU embargo on oil imports from Iran from July 1, is not likely to be a long-term trend, analysts polled by Prime news agency said on Thursday.
The price of Urals oil blend rose to $99.93 per barrel, topping the price of Brent crude at $99.73 at the close of the trading session on Wednesday, for the first time since December 2011.
“In the mid-term, demand for Russian Urals oil blend could indeed grow and the spread between Urals and Brent could shorten more,” Nomos-Bank analyst Denis Borisov said. “But Urals is still lower in quality than Brent and in the long-term the situation is likely … to come full circle.”
The EU voted in late January to ban oil imports from Iran. The move came after the Islamic Republic announced that it had launched a nuclear enrichment program at a well-protected underground facility near the holy Shia city of Qom.
The Financial Times reported this week that Italy’s Eni and Turkey’s Turpas oil firms have started buying Russian oil since the introduction of the embargo, as Russian and Iranian oil have similar levels of sulfur content.
“In the short-term, Urals will feel better than Brent as oil supply build-up from the OPEC countries, especially from Saudi Arabia will take time. However, the capacities of Russian companies to increase deliveries are limited so the spread between Urals and Brent will widen again in the long-term but will be less than before,” Raiffeisenbank analyst Andrei Polishchuk said.
Experts also doubt if Saudi Arabia will be able to fully replace supplies from Iran.
“It is doubtful from the point of production. Many U.S. experts are sure that Saudi Arabia is now at the peak production and nobody knows if the country can raise oil output by 10 percent more per year,” said Konstantin Simonov, general director of Russian National Energy Security Fund.