Amid Surged Diesel Demand, Germany Faces Potential Diesel Strains Due to Russian Export Ban

Refinery maintenance and recurring plant disruptions have yet to result in a diesel deficit in Germany. However, the potential indirect repercussions of Russia's prohibition on exports may decrease product accessibility in the forthcoming weeks.

A surge in diesel purchases over the previous week was predominantly attributed to a heightened local agricultural demand, driven by the ongoing maize and potato harvesting activities within Germany. A recent data expounds a decrease in industrial diesel tank levels, which suggests an escalated fuel usage by agriculturalists.

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Despite witnessing a 21% week-over-week increment in diesel trade volumes, the product supply remains robust. This insinuates that the sustained maintenance operations at the Gelsenkirchen and Hamburg refineries, combined with the dual plant disruptions at the Bayernoil refinery, have not hindered Germany's capability to satisfy its diesel needs.

Market participants anticipate a further surge in middle distillate requirements in the upcoming month. Historically, German corporations commence their diesel inventory accumulation around mid-October, in preparation for the obligatory transition to winter-grade diesel by 15 November. Additionally, an imminent hike in Germany's CO2 pricing and GHG quotas, effective from January 2024, is projected to spur early procurement of middle distillates before year-end.

Given the anticipated surge in diesel exports from the US to Europe in October, fueled by favorable arbitrage dynamics, any supplementary demand from Germany could be catered to via increased imports routed through the Amsterdam-Rotterdam-Antwerp (ARA) nexus. However, the Rhine's water levels currently only accommodate approximately 60% barge loading capacities for Upper Rhine destinations. These water levels are predicted to recede further by the end of the first week in October, intensifying barge loading constraints and elevating the import expenses via the Rhine.

Concurrently, Russia's recent declaration on halting diesel and gasoline exports to stabilize its internal fuel market could impede diesel inflow into Europe. Traders believe the actual impact of this export suspension on European diesel availability hinges predominantly on the ban's duration. Another pivotal factor is the volume of non-US diesel channeled into Europe during the embargo. Countries like Turkey, erstwhile importers of Russian diesel who rerouted their own production elsewhere, might curtail their exports.

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According to the article by Procurement Resource, despite ongoing refinery maintenance and disruptions, Germany has not faced a diesel shortage. The recent rise in diesel purchases can be attributed to increased agricultural demand from maize and potato harvesting. Though diesel trade volumes rose by 21% week-over-week, supply remains strong, suggesting that refinery issues haven't impacted availability.

Upcoming seasonal shifts and new CO2 pricing rules for 2024 may increase diesel demand. While the US is expected to boost diesel exports to Europe, the Rhine's low water levels could limit transport capacity and raise costs. Russia's halt on diesel exports may also affect Europe's diesel supply, depending on its duration and other suppliers' response.