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. Last Updated: 07/27/2016

NYMEX to Assist St. Pete Oil Exchange

bloombergTraders buying and selling at the NYMEX trading floor in London. The netting is to catch bids flicked by traders.
ST. PETERSBURG -- The government inked a deal Friday with the New York Mercantile Exchange to set up an oil exchange in St. Petersburg by year's end to better control the prices at which Russian oil is sold.

Russian crude -- specifically the blend known as Russian export blend crude oil, or REBCO -- is underpriced by $7 per barrel when sold at $60 per barrel, said Economic Development and Trade Minister German Gref, who signed the agreement Friday.

"These are huge losses not only for Russian oil companies but for our federal budget," he said. "The state is now moving toward real market mechanisms for trading oil."

President Vladimir Putin approved a proposal Tuesday allowing state agencies to organize the sale of oil and oil products on exchanges from Aug. 1. Such exchanges so far operate only in London, New York, Dubai and Tehran.

"Right now there is not a market place that is concentrating on Russian products," said NYMEX chairman James Newsome on Friday. "We'll now have a marketplace that will concentrate on Russian products flowing primarily into Europe."

Newsome offered the use of his exchange's clearing and trading infrastructure in setting up oil trading in St. Petersburg. Trading could be up and running "very quickly," he said.

He added that the traditional Brent-based pricing mechanism now used for REBCO was "not a perfect catch," and that local trading could displace it.

Media reports, citing Gref's ministry, have said that it would take at least two years to set up an oil exchange. But Kremlin backing and NYMEX's cooperation will likely speed up the project.

Tax and customs law is already in place for the sale and delivery of the oil futures to be sold in St. Petersburg, Gref said, adding that he hoped oil products would also be traded on the exchange by 2009.