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Global diesel prices soar as bans on Russian supplies add to tightness

Highlights

European low sulfur gasoil hits record high

Europe begins drawing more diesel from US

Latin American diesel tenders dry up

  • Author
  • Staff    Jeff Fick
  • Editor
  • Richard Rubin
  • Commodity
  • Coal LNG Natural Gas Oil Shipping

Global diesel prices are soaring on concerns that Russian supplies of diesel and feedstocks will dry up due to sanctions, exacerbating an already tight market.

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NYMEX front-month ULSD settled March 8 at $4.4373/gal, up 51.58 cents on the day and up $1.54 since Feb. 24, when the Russian invasion of Ukraine began.

"Russia supplies over 60% of Europe's imports of diesel (accounting for 14% of Europe's demand), so a potential disruption to trade would significantly tighten the market and further strengthen prices," according to S&P Global Commodities Insights.

The UK said March 8 it will "phase out" its imports of Russian crude oil and oil products by the end of 2022 in response to its war on Ukraine. Russia was the largest source of UK diesel imports in 2020, supplying 34% of total diesel imports, according to government data.

US President Joe Biden said separately March 8 the US will immediately ban imports of Russian oil, LNG and coal.

While the US does not import Russian diesel, it does supply refinery feedstocks to US refiners. And Europe could draw diesel from the US, which regularly exports the product, primarily to Latin America.

PRICES

  • Front-month ICE low sulfur gasoil hit an all-time high March 8, with the March ICE LSGO contract assessed by S&P Global at $1,505.75/mt.
  • NYMEX front-month ULSD settled at $4.4373/gal, up 51.58 cents on the day and up $1.54 since Feb. 24, when Russia invaded Ukraine.
  • The ICE Brent-NYMEX heating oil crack closed at $43.34/b on March 8, while the ICE LSGO-Brent spread ended the day at $38.81/b, a record high for both contracts.
  • Backwardation for NYMEX ULSD and ICE gasoil has blown out, signaling that the market is extremely tight, penalizing any barrels staying in storage and pricing that Russian barrels will not be fully available.
  • The ICE LSGO front-month premium to the 12-month contract ended March 8 at $669/mt, up from $127.75/mt Feb. 24.
  • The Singapore March gasoil Exchange of Futures for Swaps spread plummeted to an all-time low March 7 at $147.25/mt, indicating that arbitrage flows to Europe are more attractive than to Asia.
  • Singapore backwardation has also widened, with the 10 ppm sulfur gasoil derivative time spreads for April-May and May-June assessed by S&P Global at record highs of $10.12/b and $8.31/b, respectively, March 7.
  • In Latin America, Peru's ULSD import parity price has averaged $164/b so far this week, up from the $140/b the week ended March 4, S&P Global data shows.
  • In Colombia, the ULSD import parity price is averaging $158/b so far this week, up from the $134/b the prior week.
  • Brazilian President Jair Bolsonaro called March 7 for Petrobras to end its import-parity pricing policy, with government officials expect to meet with the state-led oil company about potential changes.
  • Petrobras has repeatedly reaffirmed the parity policy, which was implemented in 2016 and ended years of government interference at the company. Market chatter over the past week indicated the company was pushing for a price hike for diesel and gasoline amid the recent upswing, but faced resistance from the government.
  • Petrobras last raised domestic diesel and gasoline prices Jan. 13.
  • Brazil's Congress is currently discussing two bills that would address domestic fuel prices, including an adjustment to the way an important fuel tax is calculated by states as well as a stability fund that would subsidize fuel prices during periods of high volatility. Lawmakers removed a potential tax on oil exports from the legislation.
  • The Mexican Finance Ministry, also known as Hacienda, will grant a "fiscal stimulus" to sales of gasoline and diesel to keep prices from soaring.

TRADE

  • The UK will "phase out" its imports of Russian crude oil and oil products by the end of 2022, Kwasi Kwarteng, secretary of state for business, energy & industrial strategy, said March 8.
  • Russia was the largest source of UK diesel imports in 2020, at 3.6 million mt, followed by the Netherlands at 1.9 million mt and Saudi Arabia at 1.3 million mt, according to government data.
  • Essar, the owner of the UK's 205,000 b/d Stanlow refinery, is looking for alternative sources of diesel to supply its UK retail fuel network.
  • Last week, Essar said it turned away two cargoes of non-Russian origin crude, which would have been delivered in Russian-flagged tankers after the UK March 1 banned vessels that are Russian-owned, operated, controlled, chartered, registered or flagged from UK ports.
  • Essar confirmed that it took delivery of a Russian diesel cargo on March 3 at the UK's Tranmere oil terminal which had departed for the UK on Feb. 22, before the invasion of Ukraine.
  • UK refining industry association UKPIA said its members are in talks with the government to source adequate diesel imports to cover demand.
  • Austria's OMV said March 8 it has seen increased spot demand for diesel in its key central European markets and has not imposed a "general" limitation on sales of the fuel or heating oil despite concerns that real and feared Russian sanctions are already hitting regional supplies.
  • Poland called for, but not yet announced, an embargo on Russian oil and gas purchases March 8.
  • A suspension of Russian oil and gas purchases would cause significant difficulties for Poland, as its largest refiner, PKN Orlen, sources about 60% of its crude oil feedstock from Russia.
  • Exports of Russian ULSD/gasoil have already fallen, with just 823,000 barrels expected to head to Europe the week beginning March 14, down from 2.83 million barrels the week beginning March 7 and 7.32 million barrels the week beginning Feb. 14, Kpler data shows.
  • Kpler data shows US exports of ULSD to Europe rising to 2.1 million barrels so far in March, up from 1.23 million barrels in February.
  • A steady wave of nearly daily purchase tenders around the start of February, including ones by Argentina for 18 cargoes of high sulfur diesel and by Petroecuador for nine cargoes of HSD, has dried up to just three heard last week by Peru and the Dominican Republic. The US regularly supplies diesel to Latin America.

INFRASTRUCTURE

  • European/FSU diesel stocks at 228.8 million barrels as of Feb. 25 were down 53 million barrels on the year, according to S&P Global.
  • Asia-Pacific diesel stocks at 98.4 million barrels as of Feb. 25 were down 19 million barrels on the year.
  • Diesel inventories are particularly tight on the US Atlantic Coast, home of the New York delivery point for NYMEX ULSD futures. Stocks at 31.3 million barrels the week ended Feb. 25 were 29% below the five-year average, US Energy Information Administration data shows.