Russian oil priced in Russian roubles has long been a central concern for Russia, one of the largest oil producers in the world and the largest non-OPEC oil exporter. Given the importance of hydrocarbons for the Russian state budget, the country has felt at a disadvantage trading one of its main resources in US dollars considering the significant volatility of the greenback.
The launch of the Urals Futures – the first Russian-designed oil futures contract – on the Saint-Petersburg International Mercantile Exchange (SPIMEX) in November 2016 could prove a decisive step in achieving what the country sees as an improved, Russian oil pricing mechanism.
More importantly, given the large physical underlying reserves of Urals crude and the logistical infrastructure already in place to deliver it, the grade may have good potential to become a new crude oil benchmark, especially when the ruling Brent marker is underpinned on a steeply declining physical base.
However, no country can impose a new benchmark without its prior and wide adoption in a transparent and liquid enough market. Despite significant design improvements to the Urals futures contract, a wider gamut of criteria must be weighed and met for a financial instrument to become a benchmark.