Russia's main export oil blends, Urals supplied to western buyers and ESPO Blend shipped to Asian customers, sank this week following Saudi Arabia's decision to make deep cuts to official selling prices (OSP) for their April barrels.
Urals discounts to dated Brent in northwest Europe, a price reference region for the Russian grade, fell below minus $3.15 a barrel - the lowest since early January, when the Russian grade was stressed by new international shipping fuel regulations known as IMO 2020.
Asian market spot premiums for Russia's ESPO Blend crude fell to $0.25-$1 a barrel to Dubai quotes - the lowest levels since 2010, when exports of the grade were launched.
Saudi Arabia has cut OSPs for its oil for customers both in Europe and Asia by $5-7 per barrel.
Iraq also cut prices for its Kirkuk and Basrah blends for April.
WHERE IS THE BOTTOM?
Lower OSPs of Saudi grades in April supported refinery margins and made them more attractive for oil plants than the Russian grades, which have to fall further in price to appeal to refiners, traders said.
Urals discounts to dated Brent may sink to around minus $5-6 a barrel in the medium term, when the grade's refinery margins would compare with the levels provided when refining Middle Eastern grades, traders said.
"If we compare Iraqi or Saudi oil and Urals refinery margins, the Russian grade loses, so a correction in Urals prices is possible," a trader in Urals market said.
Urals differentials in northern Europe and the Mediterranean are still far above the historic lows of $7.70 and $7.55 per barrel seen in 2014, Refinitiv Eikon data shows.
Premiums for ESPO Blend have already touched historical lows as coronavirus issue pushes the Asian oil market down, along with an expected increase in Saudi Arabian oil supplies to the region, traders said.
ESPO Blend traded at premiums below $0.50 per barrel to Dubai quotes in 2010, when the grade's loadings from Kozmino were just launched.
Traders did not expect ESPO Blend to ease to more significant discounts to Dubai as Chinese demand has begun to revive.
Saudi Arabian oil sales will keep pushing prices for Russian oil grades down, but several changes in the market signal the fall may be not that harsh, traders said.
A move by the oil market into contango should support the Russian grades as that market structure encourages storage of oil. Contango is a situation where the futures price of a commodity is higher than the spot price.
"Urals storage is a good profit if it's cheap and you have storage space," a trader with a European refiner said.
Urals margins have also improved significantly over the last days because of the fall in oil prices.
Urals margins in the Mediterranean were at $5.87 a barrel on Wednesday, up from plus $1.13 a barrel over the last 15 days on average, data in Refinitiv Eikon terminal showed.