Belgium, (Brussels Morning Newspaper) European traders are stocking up on Russian diesel ahead of the EU embargo on 5 February which is expected to tighten supply.
The embargo will likely create a hole in the EU’s diesel supply which the bloc hopes to fill with Chinese imports, some of which are refined from Russian crude oil, according to Reuters reported on Monday.
China has upped its 2023 refined oil products export quotas by nearly 50% on the annual level. Mark Williams, a research director at Wood Mackenzie consultancy, pointed out that China’s diesel exports could reach 600,000 barrels per day in the first half of the year.
Energy Aspects consultancy analysts warned, “without Chinese exports pushing swing barrels westward, Europe is unlikely to replace the 0.5 million BPD loss in Russian diesel exports come to the embargo.”
According to Vortexa energy analytics, Europe’s diesel imports from Russia reached 770,000 BPD in January, reaching the highest level since March last year. Rohit Rathod, an analyst at the company, pointed out “European buyers are rushing to import as much as they can ahead of the ban.”
Dependent on imports
European refineries do not produce enough diesel to meet domestic demand, which is why European countries have been relying on Russian imports.
According to Refinitiv’s financial services company, Russian diesel accounted for approximately half of the European imports last year.
The EU banned Russian crude imports in December last year and is planning to broaden the embargo to include refined fuels next month.
Rob Turner, a partner in PricewaterhouseCoopers’ consulting business, predicted that the “high price of diesel will be maintained due to complex logistics and shipping costs.”
“That complexity, which is consequently reducing market liquidity, is likely to keep refining margins on diesel up in the same way as we have seen in 2022,” he concluded.
Alan Gelder, head of oil research at Wood Mackenzie, predicted that 2023 will be “much more volatile” than 2022, warning “we’re in for a bumpy ride for 12 weeks as global trade works its way out.”Shipping oil from Russia to northwest Europe takes approximately one week, in contrast with an average of up to 8 weeks for cargoes from Asia and the Middle East.
