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Europe risks being exposed to a “systemic” deficit of diesel supply that could worsen and even lead to rationing of fuel, the top executives of the world’s largest independent oil traders said on Tuesday.
Following the sanctions against Russia over its invasion of Ukraine, as well as buyers’ “self-sanctioning,” the global markets could lose around 3 million barrels per day (bpd) of Russian crude and products supply, with European diesel supply a big concern, the executives said at the FT Commodities Global Summit today.
According to Russell Hardy, chief executive at the world’s biggest independent trader Vitol, “The thing that everybody’s concerned about will be diesel supplies.”
Particularly for Europe, the continent imports around half of its diesel supply from Russia and the other half from the Middle East, Hardy said at the FT summit.
“That systemic shortfall of diesel is there,” he added.
“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.
Europe’s diesel shortage is worsening as Russian oil refiners have started to cut back on refinery throughput, Tornqvist added.
Diesel stocks globally were already low even before the Russian invasion of Ukraine, but the shortage has now been exacerbated by the lower global diesel supply from Russia.
In the highly volatile global energy markets since Russia’s war in Ukraine began, even the biggest traders are exposed to rising margin calls. Via futures contracts in commodities, trading houses hedge against risks. Without commodity derivatives, many traders would not be able to move physical volumes of oil.
The European Federation of Energy Traders (EFET), whose members include Trafigura, Vitol, Shell, and BP, among others, has urged European central banks for “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function,” the Financial Times reported last week, citing a letter the federation sent earlier this month.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com