That’s why the EU flounders on diesel because of Russia

With Russian imports blocked, the European Union needs to replace about 1 million barrels a day of products such as diesel and naphtha by February

The European Union has reduced its seaborne imports of crude oil from Russia since December 5, but shortly before the embargo it imported oil and even increased the purchase of Russian diesel by sea, in view of theel ban that will take effect in February.

UNCERTAINTY GROWS

While the EU embargo and the G7-imposed price ceiling on Russian crude – which set the price at $60 a barrel – did not immediately disturb the oil market (with traders concerned about a possible impact on demand from the slowdown economies), however, there is growing uncertainty about how the bans on Russian imports will affect supply balances in the coming months.

But one thing is certain: the EU needs around 1 million barrels a day of Russian products – diesel and naphtha – to be replaced by February.

EU IMPORTS OF RUSSIAN OIL SINK BEFORE EMBARGO

Russia’s crude exports to Europe fell by 430,000 barrels a day to 1.1 million barrels in November, the International Energy Agency (IEA) said in its Oil market report of last week.

Seaborne oil exports to the European Union have fallen by as much as 330,000 barrels a day to just 500,000 barrels a day. Imports of crude oil by sea fell below imports via the Druzhba pipeline – which are not subject to embargo – for the first time, according to the IEA report cited by Reuters. Last month, the EU imported 590,000 barrels a day of oil from Russia via the Druzhba pipeline.

RUSSIA TOP OIL SUPPLIER TO INDIA

The shift in Russia’s oil flows was evident last month, as total oil exports rose to their highest level since April, thanks to an increase in diesel shipments. While Russian crude exports to Europe have declined by 430,000 bpd since October, shipments to India have reached a record 1.3 million bpd, also according to IEA data.

Yup he even estimates that Russia has surpassed Iraq and became India’s largest oil supplier in November, as Indian refiners rushed to stock up on Russian oil ahead of the start of the Dec. 5 cap and related bans on carrier services for Russian crude.

RUSSIAN EXPORTS AT PEAK FROM JANUARY

Russian crude oil exports are expected to decline from January, when the EU embargo is in full effect. “A steeper decline is expected next month, with the entry into force of the EU ban on imports of Russian crude oil and the G7 price cap,” the IEA said in its monthly report.

THE REPLACEMENT PROBLEM

For this reason, the old continent will have to replace imports of Russian crude by sea with additional purchases from Kazakhstan, the United States, Norway, Brazil or Guyana, analysts say.

INCREASE OF DIESEL IMPORTS INTO THE EU, INCLUDING FROM RUSSIA

Apart from Russian crude, as anticipated, the EU will soon have to replace around 1 million barrels a day of imports of Russian petroleum products, including diesel which has been scarce in Europe for months.

Europe could be on track to set another record for the highest monthly diesel imports by buying it from around the world, including Russia as long as it’s still allowed (embargo kicks in February 5). “Crude cargoes were flat for the month at just over 5mb/d, despite a 430kb/d decline in shipments to Europe. On the contrary, product flows (particularly diesel) have increased, even in Europe”, reads the December IEA report.

For the moment, the Old Continent buys large volumes of diesel from the Middle East and Asia, but Russia is still its main supplier of diesel, but since February the competition risks becoming fierce

ANOTHER PRICES RALLY ANNOUNCED?

The trend looming on the horizon is likely to trigger another price hike in the coming months: “While lower oil prices are a welcome relief for consumers in the face of rising inflation, it remains to see the full impact of embargoes on supplies of Russian crude oil and products. Another price rally cannot be ruled out,” the international energy agency said.

A LOT DEPENDS ALSO ON THE RUSSIAN ANSWER

Russia’s supply to the global oil market “will depend not only on Moscow’s ability to place as much crude oil and products as possible with buyers in Asia who are unconcerned with or deliberately sidestep the price ceiling mechanism, but also on the effect of the policy response of the Kremlin at the price limit,” he writes Oil price.

Russia has promised to take measures to counter the price cap and is preparing to ban the sale of Russian crude to all buyers who are part of the Price Cap Coalition.

“A substantial disruption to Russian crude exports was expected as a result of the new sanctions, but so far the impact has been insignificant if at all. One reason is the fact that much of Russia’s seaborne crude oil exports have already traded below the price limit, Bjarne Schieldrop, chief commodity analyst at SEB bank, said in a statement. It may be too early to really assess the net impact of the sanctions so soon after the deadline,” adding that some reduction in Russian crude exports is likely, however.