The decision to ban diesel exports by Russia due to the escalating price of diesel could have significant consequences for the global market.
Russia, as a major player on the global diesel supply chains, had previously implemented similar bans in order to stabilize domestic fuel costs, with mixed results for international markets.
The possibility of a reintroduction ban raises important questions about diesel availability and price worldwide.
The previous Russian ban on diesel exports
If domestic prices continue to increase, the Vladmir Putin government may reinstate a ban on exports of diesel.
This is a continuation of a precedent in which Russia implemented such bans and then lifted them to manage the local fuel supply pressures and prices.
In the fall 2023, Russia will ban diesel and gasoline imports in order to control the soaring prices at home due to a weakening ruble and a rise in crude oil prices.
The restrictions were temporary but showed the government’s willingness intervene on the market in order to achieve stability.
A similar ban on gasoline was implemented on March 1, and lifted on the 20th of May after the domestic supply stabilised.
The government continues to struggle with fuel prices volatility.
Global market response, regional impacts
It is expected that the international response to a potential ban on diesel exports by Russia will vary depending on region. This will be influenced by supply dynamics and seasonal patterns of demand.
Due to a seasonal lull in demand, the Asian gasoil industry, for example, will likely see limited impact immediately due to an ample supply.
According to industry sources, the increased refinery activity in Russia in July and August will boost diesel production despite a looming ban.
The European market may be more affected by the sanctions imposed in 2023 on Russian oil. Since then, it has relied increasingly on alternative suppliers such as the US, Saudi Arabia and India.
Before the sanctions, Russia accounted for over 40% of Europe’s diesel imports.
Re-routing Russian diesel into other markets, such as Brazil and Turkey, Africa, Middle East, Asia, has changed global supply chains. This makes Europe more dependent on transatlantic trade.
Future outlook and supply chain adaptations
The adaptation of Europe to the changing dynamics in supply has been remarkable. The EU sanctions against Russian oil products that will be implemented on February 5, 2020, have led to an increase in imports of US oil and other non-Russian supplies.
In July, US diesel imports into Europe were equal to the pre-war Russian volumes, showing a major shift in trade patterns.
The spread between the futures and swaps exchanges also influences the response of the gasoil markets to a potential Russian ban.
The front-month August EFS spread pegged on July 25 was minus $25/mt. This reflects a pricing scenario that is more competitive in the West than the East.
This negative EFS spread indicates that arbitrage economics favour East-West flows. It could ease the oversupply in Asia, if Russian Diesel exports were again restricted.
Strategic implications for industry and perspectives
Analysts in the industry point out that, while a new Russian diesel export ban may disrupt supply chains and market conditions, its impact could be mitigated through strategic adaptations or existing market conditions.
Gasoil demand in Asia is low during the summer months, providing a buffer. Diversified supply sources in Europe reduce dependence on Russian diesel.
A ban during the fourth quarter could pose more serious challenges, as it coincides with a higher demand for seasonal products.
In determining the impact, the resilience of global supply chain and the ability of the markets to adapt will be key.
The previous European ban on winter heating was only a temporary measure due to the pre-existing sanctions in place and the lower winter demand.
The global energy market will be affected by the potential ban on Russian diesel exports due to rising prices.
The immediate effects may be minimal in areas with abundant supply and low seasonal demands, but the long-term impacts could vary depending on seasonal variations and market adaptations.
In order to navigate the potential disruptions that Russia’s policies could cause, the global diesel market will need to be resilient and have strategic sourcing.
What does this post Russia considering another diesel export banning mean for the global market? This post may be updated as new information becomes available
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