Tuesday, September 26, 2023
HomeHeadlinesThe EU’s Ban On Russian Diesel Won’t Really Stop Fuel Flows


To our FREE newsletter
Get all the latest maritime news delivered straight to your inbox.

The EU’s Ban On Russian Diesel Won’t Really Stop Fuel Flows

For decades, a steady stream of ocean tankers has filed back and forth between a small cluster of ports in northwest Europe and the Baltic Sea. Typically, each would bring about 40 million liters of diesel to help keep Europe’s economy humming. Tomorrow, that will be banned — along with almost any other deliveries of Russian fuels to the European Union.

While that had initially caused some alarm, the new rules are designed to be so inherently leaky that it will dull the pain for both sides. The biggest winners will very likely be traders and shipping companies as the fuel appears set to keep flowing, just via more complex, roundabout routes.

“The system will find its equilibrium sooner or later. At a cost for everybody, of course,” said Dario Scaffardi, who until last year ran one of Europe’s biggest oil refineries as chief executive of Italy’s Saras SpA. “I don’t think there’s going to be any big crisis.”

The price of diesel soared in Europe when Russia first invaded Ukraine almost a year ago. It’s since declined somewhat, and recent moves suggest easing concern about the impact of the ban.

The bloc, in agreement with Group of Seven governments, is also introducing a price cap of $100 a barrel on Russian diesel.

That means any third countries seeking to access key services for the nation’s cargoes will only be able to do so if they pay below the cap. For example, Europe and the UK are major providers of shipping insurance and reinsurance that would otherwise be prohibited.

But rather than impede exports, the relatively high threshold is designed to let them happen. Rerouting diesel-type trade flows through non-EU countries will also cushion the impact of the ban.

Still, there’s plenty of uncertainty about how all of this will play out. Europe, where transport, industry and farming are all heavy consumers of diesel, has already endured months of energy stress caused by the war. The crunch has sent fuel bills skyrocketing and helped drive economies toward recession.

And there may well be some early disruption to supply. Russia and those companies trading its fuel will need to line up alternative buyers for the roughly 600,000 barrels it previously sent to the EU every day, as well as sort out shipping and credit.

Stockpiling Effort

Countries have been urgently stockpiling in recent months, with shipments into the EU hitting the highest since at least the start of 2016 in the final quarter of last year. Arrivals have also remained well above normal so far in 2023.

In addition, there are numerous legal ways to circumvent the ban that will keep Russia’s exports and Europe’s imports flowing, even if direct trade will halt.

Russian crude is even likely to get processed in countries like India and then get sent to Europe as non-Russian diesel.

“We don’t expect Europe to run dry,” said Eugene Lindell, head of refined products at Facts Global Energy. “There are enough volumes around, it’s just a question of tapping the possibilities.”

For now, Russia appears to not be anticipating much disruption. It plans to export about 730,000 barrels a day of diesel from key western ports this month, according to industry data seen by Bloomberg. That would be the biggest flow since at least the start of 2020.

And the nation’s energy minister sees no reason for a sharp drop in oil refinery operations and fuel output when the EU’s measures kick in, Tass reported.

Whether or not it plays out that way depends, in part, on how well Russia can muscle into new markets. For example, getting countries to buy Russian diesel and then those nations redirecting fuel they would previously have been making — or importing — toward Europe.

This may be attractive to traders in nations who can buy cheap Russian cargoes and sell their own supply into the EU at a marked-up price.

Russian diesel from the Baltic Sea was assessed at around $90 a barrel earlier this week, about 25% below the cost of the fuel for delivery into northwest Europe, according to data from Argus Media Ltd. With so much wariness around dealing with Moscow, discounts at the point of export could get deeper still.

Turkey imported a record amount of Russian diesel-type fuel in December, based on data going back to 2016 from Vortexa Ltd., compiled by Bloomberg. Its overall exports also surged to a record high last month.

This trade is legal and looks a likely way that the impact of the ban will be cushioned.

Similarly, Morocco’s imports jumped last month, with a big increase from Russia. The more that happens, the more traders can divert cargoes from traditional suppliers toward Europe.

Such workarounds will help flows to be essentially re-shuffled rather than dramatically cutback.

But they also add complexity to a vast global trading system, heightening the risk of supply-chain snarls or unexpected disruptions.

Ships may have to sail significantly further, pressuring the merchant fleet. Already in the Mediterranean Sea, tankers carrying diesel from Russia’s Baltic port of Primorsk to Turkey have been sailing in the opposite direction to those hauling the same product from the Middle East to France.

According to Ben Luckock, co-head of oil trading at Trafigura, there’s a “vast volume that needs to find a new home.”

“We’re building a deep inefficiency into an oil market that has spent decades becoming incredibly efficient,” he said. “Inefficiencies tend to increase prices.”

Along with the ban on seaborne imports is the price cap. Russian fuel can also still be sold legally above the cap, just not to firms using western financial services. A large number of tankers — a so-called shadow fleet — has been assembled for this purpose.

All of that still may not be enough to cover all Russia’s output, however. Wood Mackenzie Ltd., a London-based consultant, expects the country’s diesel exports to fall by about 200,000 barrels a day this quarter versus the last three months of 2022.

Mark Williams, research director of short-term refining and oil products at Woodmac, expects a diesel price spike, though not quite to the levels in 2022, “when the market freaked out.”

“There’s been time to build stocks and source alternative barrels,” he said.


Related Posts


Finance & Economy
Shipping News

Star Bulk Announces the Repurchase of 10 Million of Its Common Shares

Star Bulk announced that it entered into a Repurchase Agreement (with OCM XL Holdings, LP, a limited partnership incorporated in the Cayman Islands, pursuant...

Trafigura announces executive leadership changes

Trafigura Group Pte Ltd. has announced an evolution of its executive team to further strengthen leadership and focus across its global activities during a...

Woori, HMM, KOBC to buy Polaris in prospective $448 mln deal – report

Polaris Shipping Co. is poised to sell its entire stake at around 600 billion won ($447.5 million) to Woori Private Equity Asset Management Co....

Pyxis Tankers Announces Closing of Ultramax JV Investment

Pyxis Tankers, an international shipping company, reported that on September 14, 2023, the Company closed on its previously announced newly formed drybulk joint venture...

Korea’s STX denies rumor that it is backed by Chinese fund

South Korean general trading company STX Corp. has said its largest shareholder is a local investment firm, while refuting the false reports appearing through...

Baltic index rises to over 4-month high on stronger capesize rates

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry...

Houston-Japan VLGC freight rates reach multi-year high

VLGC freight rates from Houston to Chiba, Japan, reached $245/mt Sept. 21 for the...

Baltic index snaps 11-session rally as rates for larger vessels ease

The Baltic Exchange’s main sea freight index, tracking rates for ships carrying dry bulk...

Baltic index rises for 11th straight session on strong vessel rates

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry...

The elite of the Shipping Industry meets at the “Maritime Cyprus 2023” Conference

The main theme of this year’s Conference is “Shipping in Action: An agenda for...

Drewry: Port Throughput Index Down 2.1% in July

The Global Container Port Throughput Index fell 2.1% MoM in July 2023, with the small rises recorded in Africa and Oceania having been insufficient...

Vopak: Agreement with Infracapital on sale of Rotterdam chemical terminals

Vopak announces that it has reached an agreement with Infracapital on the sale of its three chemical terminals in Rotterdam (Botlek, TTR and Chemiehaven)...

Port Hedland Iron Ore Exports Edge Up 4% in August

Pilbara Ports Authority has delivered a total monthly throughput of 62.8 million tonnes (Mt) for August 2023, consistent with the August 2022 throughput. The Port...

Thessaloniki, Gdańsk ports to explore synergies

Thessaloniki Port Authority S.A is expanding its role as a port of international importance through a new cooperation with the Port of Gdańsk Authority...

Hapag-Lloyd CEO: Counteroffer for HHLA would not be in our interest

Hapag-Lloyd CEO Rolf Habben Jansen said on Thursday that it would not be in the container shipper’s interest to make an offer for HHLA...