According to Rystad Energy, supplies of diesel in Europe will stay tight as the continent is trying to extenuate its Russian imports dependencies
European manufacturers are competing to secure more Russian diesel shipments before the anticipated embargos on Russian oil products that will be imposed on February 5. Since European traders have minimal options, they are boosting their Russian imports.
According to the senior vice president at Rystad Energy, Mukesh Sahdev, the EU is stuck in a stiff place as far as diesel is concerned. There needs to be more to fulfil the present or future demand.
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After witnessing a decline of 450,000 barrels each day during September, the diesel imports of Europe from Russia surged to around 600,000 bpd on average during the previous two months.
For the time being, imports from other markets like Asia and the Middle East have increased two times to 1.2 million bpd in October, compared to the levels in January, as per the consultancy based in Norway.
The International Energy Agency (IEA) stated that the continuously inflating diesel prices, along with the fragile economy, could lead to a decline in demand for diesel and gas oil from 1.5 million bpd last year to 400,000 bpd in 2022.
Diesel is the spine of worldwide economic activity, and markets were in a deficit prior to Russia’s invasion of Ukraine that started in February.
According to the Paris-based agency, this was a result of the shutdown of a refinery distillation capacity with an output of 3.5 million bpd when the Covid-19 pandemic started, which led to a net decline of 1 million bpd.
Even though the prices of diesel have slipped from their peaks in June, the average costs are still higher by USD 50 compared to the pre-pandemic levels.
According to Mr Sahdev, any price change will be due to demand cuts caused by high prices instead of the supply side, which is set to stay tight. He added that, in general, high prices of diesel and their distortion will persist and is also a key factor driving inflation in all sectors, including transport, construction, energy, and food.
The seasonal months of September and October will witness high demand for diesel in Europe, followed by a decline, with demand resuming again in February.
As per Mr Sahdev, along with crude exports from Russia declining and a complete restrictions on imports only months away, Europe is trying to reach a target that is far-fetched.
Europe does not have the refining capacity to produce diesel, and it cannot import enough to cover the losses that will come into effect starting February 5.
As far as October is concerned, the countries in the EU have lowered Russian crude oil imports to 1.4 million bpd lesser by 1.1 million bpd.
By the time crude and product bans are implemented entirely in December and February, an extra 1.1 million bpd of crude, along with 1 million bpd of naphtha, diesel, and fuel oil, will have to be substituted as per the IEA.
The Group of Seven (G7), consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, and the European Union (EU), is all set to put a price cap on Russian oil beginning December 5. The target is to keep barrels from Russia within the market without letting Moscow benefit from high prices.
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Diplomats from the EU state that they require more time before starting over negotiations for a price cap on Russian oil again; this comes after 24 hours of disagreeing on the ceiling of USD 65-USD 70 a barrel proposed by the G7.
According to Procurement Resource, the article states that Europe will be facing a shortage of diesel supply due to the embargoes that will be imposed on Russian imports starting February 5. Due to the looming fears regarding import shortage, the diesel imports of Europe from Russia surged to around 600,000 bpd on average during the previous two months.
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