International diesel costs spike as US hits Russia with new sanctions

By Ahmad Ghaddar, Shariq Khan, Trixie Yap and Enes Tunagur

LONDON (Reuters) – International diesel costs and refining margins spiked following the most recent spherical of U.S. sanctions on Russia’s oil commerce on expectations the measures would tighten provides, in accordance with analysts and LSEG information.

The US imposed its hardest sanctions on Russian producers and tankers but on Jan. 10 to curb the world’s No. 2 oil exporter’s income for its warfare in Ukraine.

Most of the newly-targeted vessels, half of what’s known as a shadow fleet that seeks to avoid Western restrictions, have been used to ship oil to India and China. Refiners in these international locations have benefited from low cost Russian imports that had been banned in Europe following Moscow’s invasion of Ukraine.

“Diesel [profit margins] are up following information on the sanctions, and we count on significant disruptions to Russian diesel exports,” stated Power Elements analyst Natalia Losada. She added that no less than 150,000 barrels per day (bpd) of Russian diesel exports from Gazprom (MCX:GAZP) Neft and Surgutneftegas refineries are in danger.

The premium of the first-month European diesel benchmark contract to that six months later spiked to $50.25 a metric ton on Thursday, a 10-month excessive, LSEG information reveals.

The diesel market was already in backwardation, the time period used for a market construction whereby close by contracts commerce at a premium to later supply contracts. This normally denotes tight immediate provide.

Diesel refining margins stood at a five-and-a-half month excessive of $20 a barrel on Thursday.

Chilly climate within the northern hemisphere was already supporting diesel markets.

Asian diesel refining margins jumped 8% on Monday to above $17 a barrel, the most important achieve since September, earlier than easing to about $16.50 a barrel on Thursday.

U.S. diesel futures surged greater than 5% on Jan. 10, their greatest every day features since October, and hit a six-month excessive of $111 per barrel on Thursday. Entrance month diesel is commanding an over $10 premium over the sixth-month contract, the most important premium in virtually a 12 months.

Merchants and refiners are factoring the upper crude prices into gasoline costs and refining runs, two Singapore-based commerce sources stated, including that decrease Russian diesel flows are unlikely to have a big effect on Asian markets immediately.

Even with increased diesel margins, Asia’s complicated refining margins have weakened as crude costs have gained at a a lot sooner tempo than refined product costs, a 3rd supply stated.

Dubai money costs rose by 8.5% from final Friday, whereas Singapore February gasoil swaps solely climbed 5.5% in the identical time interval.

Singapore’s complicated refining margins, Asia’s bellwether, hovered at five-month lows of 17 cents per barrel on Thursday, LSEG pricing information confirmed.  

Europe, which earlier than the 2022 Western sanctions, was the highest purchaser of Russian diesel, switched to provides from India, the Center East and america to cowl the shortfall.

Whereas many of the 183 sanctioned vessels have been used to maneuver crude and gasoline oil somewhat than diesel, there are issues the sanctions might impression refinery runs in India and China, slicing their diesel manufacturing and exports to Europe, Sparta Commodities analyst James Noel-Beswick stated.

Russia’s greatest diesel patrons, Turkey and Brazil, would wish to seek out different sellers like america and Center Japanese international locations in case Russian provides are considerably disrupted, he added, growing competitors for European patrons.

Different analysts say the market would finally adapt to the brand new sanctions.

“We do not really count on to see any main adjustments in Russian product flows, as the identical volumes can journey to the identical locations, simply utilizing non-sanctioned tankers,” FGE Power analyst Eugene Lindell stated.