Market conditions

The average price of Urals oil for January-December 2018 was a little over USD 70.2 per barrel. The stabilization and price growth factors for 2018 besides the extension of the OPEC+ deal included the deterioration in the political situation in a number of oil exporting countries and the increased sanctions pressure.

Against the backdrop of OPEC measures, Brent’s oil price was maintained above USD 70 per barrel for most of the year, surpassing USD 84 per barrel at the beginning of Q4.

The peak values were reached in October 4 at USD 84.84. The incoming oil quotes for 2018 fluctuated around US$ 66 per barrel, while the minimums were recorded at the USD 51.14 level in December.

In 2018, oil oversupply on the world market was partially eliminated due to the collective efforts of the countries participating in OPEC+ on production restriction. However, a sharp surge in the oil price caused a stimulation of production and led to compensation of the price to the October 2017 level.

Crude oil price and USD / RUB exchange rate
Global oil production and demand, MM bbl per day

The most significant periods of growth in oil prices were Q3 and Q4 2018. The sharp and immediate leap in the oil price by USD 2 occurred in late August in less than a day, when the price of Brent brand increased to USD 72 per barrel and by October surpassed US$ 80 per barrel.

Q4 2018 was characterized by conservative forecasts based on expectations of over-production of liquid hydrocarbons:

Oil price dynamics by years
Name 2016 2017 QI 2018 QII 2018 QIII 2018 QIV 2018 2018 +/ - %
Brent (DTD), USD/barr. 43.7 54.2 66.8 74.4 75.2 68.8 71.3 +17.1 +32
Urals (Rdam), USD/barr. 41.9 52.9 65.3 72.2 74.0 68.0 69.9 +17.0 +32
Urals (MED), USD/barr. 42.5 53.3 65.2 72.8 74.3 68.5 70.2 +16.9 +32
USD rate, RUB 67.1 58.4 56.9 61.9 65.5 66.3 62.6 +4.3 +7
Price of Urals (Rdam), RUB/barr. 2,810 3,086 3,712 4,469 4,843 4,510 4,377 +1,290.8 +42
Price of Urals (MED), RUB/barr. 2,849 3,109 3,709 4,505 4,865 4,541 4,398 +1,288.7 +41

In 2018, the average price of Urals oil was at US$ 70.2 per barrel, which is higher than the average value of 2017 by more than 32%. 2018 was marked by a reduction in the sensitivity of the ruble exchange rate to oil price. Thus, as the world prices grew by 32%, the price in ruble equivalent surged by more than 41%.

Oil price dynamics by ages with account of taxes and duties
Name 2016 2017 QI 2018 QII 2018 QIII 2018 QIV 2018 2018 +/ - %
Urals (MED), USD/barr. 42.5 53.3 65.2 72.8 74.3 68.5 70.2 +16.9 +32
USD rate, RUB 67.1 58.4 56.9 61.9 65.5 66.3 62.6 +4.3 +7
Export tariff, USD/t 82.8 115.9 152.5 175.7 180.4 162.6 167.8 +52.0 +45
Mineral Extraction Tax, RUB/t 6,052 8,171 10,413 12,950 14,030 12,845 12,534 +4,363 +53
Price free of tariffs and taxes, RUB/t 8,995 7,544 7,730 8,745 9,334 9,210 8,750 1,206 16

Russian assets should be noted separately, as the existing tax environment in the Russian Federation in conjunction with the actual pair “oil price - dollar rate” partially mitigated the growth in the average cost of a ton of Urals oil net of taxes.

Despite the substantial world price, the ruble price net of taxes increased by only 16% due to the absence of the price-change compensation effect owing to changes in the exchange rate. At the same time, the tax burden per 1 ton of oil increased by 50% compared to 2017.

The dynamics of the oil-products market in the Mediterranean region where the assets of the Zarubezhneft JSC oil-refining segment operate allowed to maintain a high level of assets operating efficiency until the fourth quarter.

At the same time, continuation of positive spread growth for light oil products was partially mitigated by an increase in negative spread on dark oil products in the third and the fourth quarter. It is also worth noting that the refinery margin in the region of Zarubezhneft JSC’s presence remains at one of the lowest levels compared to other regions. Hence, the disruption from the North American market, which decreased in the first quarter of 2018, had grown again to the 2017 level by the end of the year.

In general, the 2018 results demonstrate the effective use of rapidly-changing macroeconomic conditions by the Zarubezhneft Group of Companies to maximize its financial results.

Oil and oil-product prices, USD/t
Refinery margin, USD/bbl