FACTBOX: Russian fuel export ban seen short-lived but hitting Turkey, Brazil hard

Russia announced Sept. 21 it has temporarily banned most of its exports of diesel and gasoline with immediate effect in a bid to curb rising domestic fuel prices.

The ban comes at a time when exports of gasoil/diesel normally fall due to higher domestic demand during the autumn harvest, analysts at S&P Global Commodity Insights noted, adding that the ban highlights Russia's track record for tightening markets for local benefit via higher prices and revenues.

"[We believe] the ban will be short-lived, perhaps a week or two," oil analysts at S&P Global said in a note. "It is a blanket ban with immaterial exceptions, thus we believe it will be difficult to enforce for long. Russia has limited storage capacity to accumulate supplies and will not want to miss out on strong margins globally."

Trade flows

By far the biggest impact of the ban will be on global diesel markets, as Russia has been exporting almost 1 million b/d of diesel so far this year, compared with gasoline flows of around 150,000 b/d. Since the war in Ukraine, Russian diesel exports have increasingly found new markets outside their traditional European demand center where France, the UK and Germany were major buyers. African fuel importers have also stepped up purchases of discounted Russian fuels since the war.

• With diesel and gasoil exports close to 1 million b/d, Russia is the world's second-biggest exporter of diesel behind the US.
• Turkey and Brazil are currently the biggest single buyers of Russian diesel. Combined, they absorbed 55% of Russian diesel exports in August, data from S&P Global Commodities at Sea shows.
• Turkish imports of Russian diesel have surged since late 2022, averaging 280,000 b/d this year from 65,000 b/d in the first half of 2022, after EU and UK bans on Russia-origin oil products redirected Russian cargoes.
• With Russian crude and products flowing into Turkey, the country has also become the third-largest diesel and gasoil supplier to Europe behind Saudi Arabia and the US, CAS data shows.
• Russia had seen its diesel/gasoil and gasoline exports rise to a peak of 1.2 million b/d in March despite Western sanctions and G7 restrictions on shipping Moscow's oil. But the diesel exports have fallen sharply so far this month, averaging 660,000 b/d to Sept. 20, CAS data shows.

Prices

Given the scale of Russian diesel exports and the already tight global middle distillate markets, the announcement pushed up regional gasoil values back towards levels seen after Russia's invasion of Ukraine in 2022.

• ICE gasoil settled 4.5% higher on the day Sept. 21. Platts, part of S&P Global, assessed the ICE low sulfur gasoil front-month futures contract up $43.50/mt on the day Sept. 21 at $1,006.25/mt.
• The gasoil crack spread also rallied following the announcement as markets anticipated a shortfall in diesel supplies. Platts assessed the Brent crack for 10ppm sulfur diesel in the Amsterdam-Rotterdam-Antwerp region at $41.34/b on Sept. 21, a 15% jump on the day and close to 10-month highs seen in recent weeks.
• European diesel values had also soared in recent months to hit a 10-month high Sept. 14, fueled by strong demand, a heavy refinery maintenance season and lower-than-normal stock levels.
• Inside Russia, spot prices of gasoline and diesel surged to record highs this summer, fueled by a tax change that drove exports over domestic sales, a spate of Russian refining outages, and severe rail transport delays.
• Russian domestic diesel and gasoline prices closed 10% lower on the day on the exchange floor after the ban was announced.

Russia did not specify the duration of the ban -- which excludes flows to the Eurasian Economic Union (Belarus, Kazakhstan, Armenia and Kyrgyzstan) -- but market watchers expect the curbs to be in place no longer than a few weeks given the country's limited crude and product storage capacity.

• "I don't think they will limit exports for any longer than a couple of weeks," a European diesel trader said. "They are only going to make themselves suffer if they can't actually sell their product."
• The export ban will last "as long as necessary to secure stability on the market", Kremlin spokesman Dmitry Peskov was quoted by local media as saying.

Infrastructure:

Nearly all Russian fuel exports are shipped via tankers to overseas markets. But severe rail transport delays have been part of the reason that domestic fuel prices have rocketed this summer, causing regional shortages and delays in getting fuel to export terminals.

• The ban excludes diesel and gasoline which have already been cleared by the Russian customs for export and for rail or sea transportation.
• Diesel makes up the bulk of Russia's fuel exports but the ban includes finished grade gasoline, summer, intermediate and winter diesel grades as well as heavy distillates including gasoil.
• Transneft has suspended exports of diesel delivered by pipeline to Novorossiisk and Primorsk, the company told local media.

The export ban comes as Russia's war in Ukraine continues to put a strain on its nationwide transport logistics and economy.

• Rail transport delays, firm domestic crude prices and strong export netbacks have pushed up domestic diesel prices of Russia's main oil product exports. Russian diesel supply tightened last month, forcing the Russian energy ministry to prioritize the domestic agriculture and consumer sectors, S&P Global reported previously.
• In August, Russia's oil product exports fell to a 10-month low of 2.27 million b/d, the data showed, down from a post-war high of 3 million b/d in March, as the country's refineries remained at high levels of seasonal maintenance.
• According to S&P Global, refinery downtime in the Former Soviet Union region increased by 310,000 b/d in the week ended Aug. 25 to 1.06 million b/d and is expected to have remained around the same level during the final week of August.