Diesel Price to Rise as Russia Halts Export

The price of diesel has been projected to rise further following Russia’s announcement to halt exports temporarily. In Nigeria, diesel price peaked at around N1,100 per litre last week, a development that raised companies spending on energy. This surge has raised companies’ production costs as manufacturers battle other macroeconomic uncertainties.

For Nigeria, rising energy cost is a risk to the growth outlook, analysts said in a chat with Nairalaw.com. The private sector is already faced with accelerating headline inflation that has forced a jump in production costs generally and across various sectors of the economy.

Last week, middle distillate markets received another boost after Russia announced that it would be temporarily banning diesel and gasoline exports. This is at a time when there is already plenty of concern around middle distillate availability.

Russia announced that it would be temporarily banning the export of diesel and gasoline in order to try to take some pressure off domestic fuel prices. The ban comes into effect from 21 September with no end date as of yet.

Even prior to the announcement, ING’s Head of Commodities Strategy Warren Patterson said Russian diesel exports had come under pressure through September due to domestic refinery maintenance and efforts from the government to increase supply in the domestic market.

The impact on the middle distillate market has been clear: ICE gasoil settled 4.51% higher on the day of the announcement, whilst the November gasoil crack rallied above $37/bbl at one stage, and the prompt gasoil time spread saw its backwardation widen to more than $35/tonne, highlighting the tightness in the middle distillate market.

Russia is a crucial supplier of refined products to global markets, with it exporting in the region of 1MMbbls/d of diesel, according to ING. In fact, Russia is the second-largest exporter of diesel, with just the US exporting larger volumes.

Analysts said the export ban is less concerning for the gasoline market, with Russian exports of gasoline and gasoline components averaging around 145Mbbls/d so far in 2023, a loss that the global market should be able to absorb more easily.

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 commodity strategist said in the note.

“Although given the likely domestic stock build we will see as a result of the ban, we would not expect it to be prolonged”.

Ban only adds to an already-tight middle distillate market, analysts said. The middle distillate market was already seeing significant strength ahead of this ban with inventories tight in the US, Europe and Asia as we head into the Northern Hemisphere winter.

There were a number of factors behind this tightness, including OPEC+ supply cuts, recovering air travel, limited refining capacity growth, and in Europe, the struggle of being able to fully replace Russian middle distillates after the EU ban came into effect in February.

The loss of around 1MMbbls/d of Russian diesel in the global market will be felt and only reinforces the supportive view we have held on middle distillate cracks and as a result on refinery margins.  #Diesel Price to Rise as Russia Halts Export

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