Russia on Thursday halted exports of diesel and gasoline to all destinations except four former Soviet republics.
Diesel prices jumped on Thursday after Russia announced the suspension of its exports, adding to the tensions already observed in this market where supply is a concern due to a lack of available capacity elsewhere. The benchmark European diesel contract, for delivery in October, gained 1.92% on Thursday, to $980 per tonne, very close to its highest level of the year. As for the wholesale price of diesel for immediate delivery in New York, it gained 2.55%, to $3.41 per gallon (3.78 liters).
Russia halted exports of diesel and gasoline to all destinations except four former Soviet republics on Thursday, officially to relieve its domestic market, where fuel prices are soaring. After having digested the extension of the reduction of Russian exports of 300,000 barrels per day of crude until the end of the year, the market “must now face uncertainty as to the duration of this temporary ban” concerning petroleum products, underlines Edward Moya, of Oanda.
“Very worried market”
“Russian diesel exports account for around 1 million barrels per day, or 16% of seaborne supplies, while the share of gasoline is much smaller, around 3%,” estimates Giovanni Staunovo, analyst at UBS, interviewed by AFP. Russia has long been a major supplier of refined products, diesel in particular, to the West, whether the United States or Europe. But the invasion of Ukraine reshuffled the cards and pushed most of the countries that were its customers to deprive themselves of Russian diesel, which strained the market. China, India and the United States have increased their exports to Europe to compensate.
However, this new arrangement was made possible by the fact that Russian diesel had found other outlets, mainly in Asia, which modified the flows but not the volumes available on the world market. The pure and simple cessation of Russian exports undermines this fragile balance, as the northern hemisphere prepares to enter winter, which often marks a peak in consumption of diesel and fuel oil. “The market is very worried”according to Phil Flynn of Price Futures Group. “If I were a diesel user and I had not yet secured my supplies, I would be concerned.”
“If we have a cold winter, we’re going to have big problems,” he insists, “and that’s what makes the market very nervous.” “There is not a lot of spare capacity in the world” to refine diesel, underlines the analyst. In the United States, export potential is limited because the American market itself is under pressure, with demand more than 11% higher than last year. For Phil Flynn, the lack of supplies in the United States is also a factor “to the regulatory environment, which discourages investment” in new capacities. The number of operating US refineries has fallen in recent years and is now the lowest in the modern era, a movement accelerated by the pandemic, which triggered a wave of site closures, which have not reopened since.
As for China, its diesel exports have already tripled over the first eight months of the year compared to 2022. The restrictions on Russian exports are in addition to the commitment that the country had already made, jointly with that of Saudi Arabia, to deprive the market of millions of barrels of crude at least until the end of the year. “These two major producers are engaged in a balancing act,” describes Stephen Schork, of the Schork Group.
“They want higher prices, but they also don’t want to kill demand and encourage the transition to renewable energy and electric vehicles.” After having, like diesel, initially risen, crude oil prices however lost momentum, imitating their trajectory of the three previous sessions, a sign of a market “overheating”, according to Stephen Schork. The price of a barrel of Brent from the North Sea for delivery in November fell 0.24%, to close at $93.30. Its American equivalent, the West Texas Intermediate (WTI) of the same maturity, ended almost stable (-0.03%), at $89.63.
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