The ban on Russian diesel begins in February. This is leading to European traders rushing to bring in supplies before the deadline.

Russian diesel is fundamental to UK and EU supplies and accounted for over 50% of supplies prior to the invasion. Despite the ban looming, alternative sources are scarce. As the war in Ukraine drags on, so the the repercussions continue to reverberate around the world.

Unreliable supply

Russian diesel loadings destined for the Amsterdam-Rotterdam-Antwerp (ARA) storage region rose by 126% from October. This means that diesel from Russia makes up 44% of Europe’s total imports of the road fuel so far in November, compared with 39% in October.

From 30th Nov, traders must prove that no Russian product has entered any tanks. However, diesel already in the huge storage tanks can be delivered, hence to rush before the ban.

It comes as warning of further diesel price increases hit the headlines.
The International Energy Agency (IEA) describes the market as “exceptionally tight”.

Diesel prices are being forced upwards. In October they were 70% higher than a year ago, according to the IEA.

“High diesel prices are fuelling inflation, adding pressure on the global economy and world oil demand,” said the Paris-based IEA.

New Year, new worries

Once an EU embargo on imports of diesel and other refined products from Russia is implemented in February, the market will tighten further.

“The competition for non-Russian diesel barrels will be fierce, with EU countries having to bid cargoes from the US, Middle East and India away from their traditional buyers,” it said. “Increased refinery capacity will eventually help ease diesel tensions. However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear.”

According to The Financial Times, upward pressure on prices for diesel, which is described as “a workhorse fuel that is key for economic growth” has been growing .

‘Diesel markets were already stretched before Russia’s invasion of Ukraine because of the closure of 3.5mn barrels a day of refinery capacity since the start of the Covid-19 pandemic, the IEA said.

The disruption of Russian shipments and lower-than-normal Chinese exports have further crimped supply just as demand for the fuel revived after the easing of pandemic restrictions in most of the world.

Global supply problems have been exacerbated in recent months by industrial action at European refineries. Walkouts over pay at several refineries in France led to fuel shortages across northern France in October and at one point helped to propel diesel prices in the main European trading hub of Rotterdam to more than $80 higher than the price of crude oil, the IEA said.

With the cost of living rising, further industrial action is anticipated. Workers at ExxonMobil’s 270,000 b/d Fawley plant in the UK have announced a walkout for late November, while workers at BP’s 380,000 b/d Rotterdam facility have also threatened to strike.’

Changing world

With the ban on Russian diesel comes into force, Europe will have to replace an additional 1 million barrels a day of diesel according to the IEA’s calculations.  However, the Chinese economic downturn, Europe and US recessions and the cost of living crisis are likely to reduce demand. However, the future of supplies, demand and pricing is difficult. It means that prices are likely to remain volatile for some time to come.