A fall in Russian diesel and gasoil cargo loadings could squeeze global supply to the detriment of Europe, with the continent's autumn refinery maintenance season about to begin.
Russian export supply appears to be falling as domestic demand rises. The Kremlin is attempting to crack down on export of products allocated for the domestic market, a practice it deems partly responsible for shortages and higher wholesale prices. Additionally, Russia's own refining maintenance season is beginning.
Daily Russian diesel cargo loadings fell to 135,200 t/d between 1-11 September, from 139,300 t/d last month and 148,200 t/d in July, according to Vortexa. The September daily rates put Russian exports on track for a five-month low, and market participants said low-sulphur diesel exports from the country's major Baltic Sea port of Primorsk could fall by a third to 1.1mn t in September.
This could exacerbate supply tightness in Europe, even though the EU and UK banned Russian diesel imports in February. It could be a contributing factor behind the recent rally in northwest European low-sulphur Ice gasoil futures, which moved higher by $95.25/t between 1-11 September to settle at $1,011.75/t on 11 September.
Turkey and Brazil have been the top two recipients of Russian diesel and gasoil since the European ban took effect, taking 44pc of all Russian exports between them. This has enabled both to either directly or indirectly increase flows to Europe.
The arrival of Russian product in Turkey has allowed that country's refiners to sell their diesel to Europe, with the cheaper Russian imports used for domestic consumers. Turkish diesel imports surged to 60,400 t/d in March-August, according to Vortexa, up by two thirds year on year, and Russian cargoes doubled to more than 80pc of arrivals in this period. But a trader in the region said Turkish refineries are now lowering exports because less Russian diesel is arriving. Turkish diesel export loadings were at 18,000 t/d between 1-11 September, compared with 25,300 t/d in August, according to Vortexa.
Brazil may lean on US supply if Russian transatlantic shipments falter. Brazil received 15,700 t/d of Russian diesel and gasoil in the March-August period, around half its diesel imports in that time. A sustained fall may draw in more US product — shipment times are shorter, US refineries may wish to secure market share, and traders may pay less for freight compared with transatlantic rates.
A Brazilian pivot to the US would eat into the amount available to move transatlantic to Europe, at a time when US supply is itself tight. On the US Atlantic coast, diesel inventories remain below seasonal norms. The most recent report from the EIA showed 15ppm diesel stocks for the week ending 1 September at 27.1mn bl, nearly 30pc below the same period in 2021, prior to the Russian-Ukraine war.
For now, arrivals in Europe of diesel from east of Suez appear to be alleviating any gap in supply. Cargo arrivals from Saudi Arabia and India to the EU and UK were around 780,000t between 1-11 September, not far behind around 990,000t for all of August. Current import levels, which are high on a daily basis, could assuage concern over low arrivals in the late summer.
