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Brazil is in talks to boost diesel deliveries from Russia and the Middle East amid a shortage of the fuel that began several months ago and is currently hurting President Jair Bolsonaro’s re-election chances next month.
Per a Reuters report, the Brazilian government had said earlier this year that it was trying to buy as much diesel from Russia as it could to shore up its supply.
The diesel shortage is not a specifically Brazilian problem, however, and the redirection of flows means the shortage could get worse elsewhere. Europe is particularly vulnerable because of the oil and fuel embargo on Russian hydrocarbons that is due to come into effect later this year and early in 2023 for fuels.
In August, Reuters reported that Europe’s diesel inventories were below the average for that time of the year and as buyers shunned Russian fuels and crude amid sanctions on other Russian imports, replenishment did not take place. The other reason for that was that diesel inventories are also thin elsewhere, notably in the United States.
The tightness in the diesel market was the result of a number of factors, including the switch from gas to diesel for industrial energy generation amid soaring gas prices. Most of these switches were made in Europe and the Middle East, Bloomberg noted in a late-August report.
With Russia supplying some 60 percent of Europe’s diesel, due to dry up in early February next year, European consumers of the fuel would need to act fast to secure alternative supplies from a limited pool. China is a possible savior if it increases its fuel production but there are geopolitical problems with replacing a diesel reliance on Russia with one on China.
In the meantime, as Russia would need new markets for its fuels, Brazil could become a rare beneficiary in a tight supply market.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.