In a rare move, Saudi Aramco has announced a tender for the purchase of between 1.2 and 4.6 million barrels of low-sulfur diesel fuel, adding pressure on an already tight market.
Bloomberg cited unnamed traders familiar with the move as commenting that it is not a usual thing for Aramco to do since the state oil giant is normally a net exporter of the fuel.
The news comes as the already tight diesel fuel market was shaken by Western sanctions against Russia, which resulted in a sharp increase in prices as supply certainty went through the window.
According to a BBC report, the cost of filling up the tank of a diesel car in the UK hit a record $119 (90 pounds) even though imports of crude and fuels from Russia only constitute 8 percent of the UK's total oil and fuel imports. Some 18 percent of the Russian import share is diesel, the report noted. This amount of diesel makes Russia the UK's largest supplier of the fuel.
Even so, the impact of sanctions on diesel prices has been substantial, most likely because of the already tight supply situation with the fuel, especially in Europe.
"Russia supplies over 60% of Europe's imports of diesel (accounting for 14% of Europe's demand), so a potential disruption to trade would significantly tighten the market and further strengthen prices," analysts from S&P Global Commodities Insights said.
In this context, Saudi Aramco's tender comes at a very bad time. According to the Bloomberg report, traders believe finding so much diesel within a couple of weeks, which is the deadline for the tender offers, would be quite a challenge.
It would also be expensive, as the diesel market is in a sharp backwardation, with near-term cargos costing a lot more than cargos for later delivery.
By Charles Kennedy for Oilprice.com
More Top Reads From Oilprice.com:
Charles is a writer for Oilprice.com More