P.A. Turkey

S&P Global:  Russian diesel export ban to hit Turkey, Brazil hardest but curbs seen short-lived

Russia’s move to temporarily ban nearly all its exports of diesel and gasoline to ease surging domestic fuel prices is set to hit flows to Turkey and Brazil, but market watchers expect the curbs to be short-lived.

 

Announced with immediate effect on Sept. 21, 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 this year, compared with gasoline flows of around 150,000 b/d.

With Russia the world’s second-biggest exporter of diesel behind the US, the impact on the already tight middle distillates markets was marked. ICE gasoil settled 4.5% higher on the day Sept. 21, while the November gasoil crack spread rallied above $37/b during the day. Platts, part of S&P Global Commodity Insights, assessed the ICE low sulfur gasoil front-month futures contract up $43.50/mt on the day Sept. 21 to $1,006.25/mt.

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. 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.

 

But rising flows to Saudi Arabia and Turkey in particular have allowed those countries to redirect increasing flows of domestic diesel toward Europe. As a result, the ban is seen feeding through to European diesel prices.

 

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 the EU and UK bans on Russia-origin oil products redirected Russian cargoes, CAS data showed. As a result, Turkey became the biggest buyer of Russian diesel at the start of the year. 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’s export ban will also hit Brazil, which has become the second-biggest market for Moscow’s diesel exports in recent months. Russian product has accounted for about 78% of diesel imports to Brazil since March, CAS data shows. With Russian flows to Brazil set to dry up, S&P Global analysts estimate the Russian export ban will open doors for higher US Gulf Coast exports and prices, as it remains the most reliable supplier to South America.

 

 

Storage constraints

Russia’s lack of any guidance on how long the export ban will last has left market watchers guessing at the scale.

 

Analysts at JP Morgan expect the ban will last only a couple of weeks, until harvest concludes in October, due to the limited scale of local fuel shortages and wider oil market dynamics. The investment bank reasoned that limited Russian oil storage capacity would likely force cuts in refinery runs — which could support fuel prices — and risks creating tensions between Russia and OPEC+ if Moscow is tempted to export more crude in spite of its recent pledges to cut exports. The bank also said it believes Russia’s fuel shortages are not extensive, with supplies in most regions “relatively balanced”.

 

Noting that the Russian 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 said 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. 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,” oil analysts at S&P Global said in a note.

 

ING bank also said it does not expect the export ban to be prolonged, given the likely rapid domestic stock build as a result of the curbs.

“How severe of an impact the loss of Russian diesel has on the global market will really depend on how long the export ban is in place,” ING said in a note. “This does leave some upside risk to our view that the ICE gasoil crack would average $30/b for the remainder of the year.”

 

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