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Alexander Khurshudov: I cant see any advantages of our petroleum exchange over the other trading platforms

November 30, 2016/ 07:44

Moscow. 29 November St. Petersburg Commodity Exchange started trading futures for Russian export oil Urals. Delivery will take place from Primorsk port, the scope of contract will amount to 1 thousand barrels. Zarubezhneft, Gazpromneft, Surgutneftegaz have confirmed their readiness to participate in the trading of the futures. Initially the futures will be traded in Dollars, however, after the contract receives the benchmark status, it will be possible to create futures for Russian oil in Rubles, Euros and Yuan. Alexander Khurshudov, Oil and Gas Information Agency expert, comments on the news:

I don’t cherish hopes for that undoubtedly good intention, because it is very difficult to fulfill. The reasons for this are purely economical.

Where do people hold fairs? In the places, where there are a lot of buyers. And not just those who like to bargain, but those who have a lot of money. Buyers like these live in Western Europe and they are quite happy with London Exchange and its large oil terminal in Rotterdam. Surely there are Finland, Poland and the Baltic countries, for whom Primorsk is a little closer than Rotterdam. Though,these countries are connected with Russia by pipelines, so they don’t need the supply by the sea.  Consequently, it is highly improbable that there will be a need to physically export oil though St. Petersburg Exchange; if there are supplies, there will be just a few of them.

However, there is another objective: to create a base of Urals quotes due to open trade of the futures, so that they would become a reference for long-term contracts. To do this it is necessary to trade the futures for at least 3 million barrels at the Exchange daily.It’s worth to mention that the turnover at London and New-York Exchanges are dozens times higher, so the trade risks and expenses are less.

An Exchange like this works in Dubai, it trades in cash settlement contracts. You can’t buy oil there, but you can use its price for reference. The average price of  Dubai Crude equaled $51.2 last year and it was $1.19 lower than Brent price. Urals average annual price turned out to be almost the same, $51.23.

I can’t see any advantages of our Exchange over the other existing trading platforms, neither now, nor in the future. You can force the suppliers to trade at the Exchange, but you can’t force the customers. However, the authors have managed to persuade the President, which means that there is an administrative resource behind the project. Let’s wait and see how it will be realized.

The media mention the future possibility to trade oil for Rubles at this Exchange in the future. This is a pipe dream for some of our utopian economists. Without going into details, I’ll say that Ruble will have to become a free convertible currency first.

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