Europe's diesel shortage is becoming worse as Russian oil refiners have started to cut back on refinery throughput, according to the chief executive of one of the world's largest independent commodities trading houses, Gunvor.
"This is a global problem but for Europe it's very hard because Europe is so short" of diesel, Gunvor CEO Torbjorn Tornqvist said at the Financial Times Commodities Global Summit as carried by Bloomberg.
Trade with Russian diesel is becoming scarcer because of buyers in Europe steering clear of Russian shipments, awaiting further sanctions against Russia over its invasion of Ukraine, or simply declining to purchase Russian energy to finance Putin's war in Ukraine.
The "self-sanctioning" of the buyers has already started to force Russian refiners to reduce production, according to Gunvor's Tornqvist.
"What does that mean? It means more crude oil will need to be exported instead of the products, and we believe that is not possible and will lead to cutbacks in Russian production," he said, as carried by Bloomberg.
Diesel stocks globally were already low even before the Russian invasion of Ukraine. According to estimates from Reuters' John Kemp, diesel fuel stocks in Europe are at their lowest since 2008, and 8 percent—or 35 million barrels—lower than the five-year average for this time of the year.
In the United States, the situation is graver still. There, diesel fuel inventories are 21 percent lower than the pre-pandemic five-year seasonal average, which translates into 30 million barrels.
In Singapore, a global energy trade hub, diesel fuel inventories are 4 million barrels below the seasonal five-year average from before the pandemic.
On top of exacerbating a global diesel supply crunch, the sanctions against Russia are also likely to force Russian firms to shut in some crude oil production, analysts say. Russia will have to shut in some of its oil production as it will not be able to sell all the volumes displaced from European markets to other regions, with Russian crude production falling and staying depressed for at least the next three years, Standard Chartered said earlier this month.
By Tsvetana Paraskova for Oilprice.com
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For example, an export of 5.00 million barrels a day (mbd) at $90.0 a barrel before the Ukraine conflict would have earned Russia $450 million a day. Today Russia only needs to export 3.91 mbd or 22% less to make the same revenue.
Still, a big chunk of Russia’s crude and products exports goes anyway to China, another chunk is bough by India and other countries and the remainder is bought discretely by oil traders.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London