With international sanctions on Russian diesel shipments in place for more than two weeks, early signs are that they are having at least part of the desired effect.
The latest measures by the Group of Seven and the European Union were essentially designed to do two things: reduce Moscow’s income but keep the barrels.
Since the new rules took effect on February 5, the export price of Russian diesel has fallen further relative to non-Russian supplies, with the discount above $35 a barrel earlier last week, according to data provided by Argus Media Ltd. and converted into barrels by Bloomberg.
At the same time, exports have been largely maintained. In the first half of February, shipments of diesel-type fuels from the nation’s ports averaged more than 1 million barrels per day, down slightly from January but still well above the daily average of 2022, according to Vortexa Ltd. data, compiled. by Bloomberg.
The wider diesel market is also relatively quiet, an important detail for the G7. The price of diesel futures relative to crude oil, known as the crack spread, recently hit its lowest level in nearly a year. The structure of the fuel forward curve, a key metric of supply and demand, does not indicate any obvious panic.
What is not clear, however, is the price at which the Russian fuel is ultimately sold and where that money ends up.
Different prices
Russian oil prices are often quoted on what is called Free-on-Board, or “FOB”. This is essentially the price at the Russian port where the ship is loaded.
Argus’ latest FOB price for Russian-origin Baltic Sea diesel is around $78 a barrel, well below the $100 agreed by the EU and the G7. But diesel-type fuel is sent from this region to countries such as Turkey, Morocco and Tunisia.
Buyers in these locations may be paying significantly more than the FOB price. They are certainly in the crude market: Russian Urals delivered to India recently fetched $20 more a barrel than its Baltic export price.
“There are fewer deals being done openly through brokers and more deals behind closed doors,” said Mark Williams, director of short-term oil research at Wood Mackenzie Ltd. This decreases price transparency for the wider market.
Smooth browsing?
There is also the question of whether Russian exports will continue in the relative calm they have done so far.
The International Energy Agency said on Wednesday that it expects Russia to struggle to supply diesel and subsequently have to cut refining runs.
Data from Vortexa show that Russia’s diesel-type fuel export rate in the first half of this month has only been exceeded nine times in more than seven years on a monthly average.
And while they’re down about 150,000 month-on-month, it’s worth noting that export rates in January and December were the highest recorded in data since early 2016.
Still, with higher Russian refinery maintenance and lower crude oil prices in the coming months, the country’s diesel exports are expected to continue to decline going forward, according to Williams.
