Amid three consecutive weeks of rising international oil prices, Russia has made another move targeting refined fuel.
On September 21, the Russian government's press office announced on its website that Russia would implement a temporary ban on the export of gasoline and diesel to stabilize its domestic market.
The temporary restriction, signed by Prime Minister Mikhail Mishustin, is aimed at stabilizing domestic fuel prices. This move is expected to saturate the fuel market, potentially leading to reduced prices for consumers.
According to the government decree signed by Prime Minister Mishustin, the ban, which also applies to gasoline, took effect on September 21, with no set end date. The decree indicates that there will be exemptions for limited exports, including those to certain trading allies, as well as for humanitarian aid and transshipments.
Russia is a major global supplier of diesel. However, in recent months, the country has faced shortages of gasoline and diesel, leading to skyrocketing fuel prices. The latest data from the Russian Federal Statistics Service shows that from the beginning of the year to September 18, retail prices for gasoline and diesel in Russia increased by 9.4%, while the overall CPI rose by 4%.
The southern agricultural regions of Russia are particularly affected by fuel prices, and the lack of fuel supply could also adversely impact agricultural yields.
Traders, in media interviews, indicated that the fuel market has been hit by factors such as refinery maintenance, railway bottlenecks, and a weak ruble, with the latter also stimulating fuel exports.
The export restrictions could exacerbate the current global diesel supply shortage. Currently, due to joint production cuts by Russia and Saudi Arabia, global oil prices have risen for three consecutive weeks. Brent crude prices broke the $95 per barrel mark this week before slightly retreating.
Bloomberg data shows that the premium of Northwest European benchmark diesel futures over crude oil has surged, breaking $35 per barrel. The price of diesel futures for October delivery has also risen compared to futures for the following month.
International Diesel Market: Demand Outstrips Supply Diesel, a primary fuel for industry and transportation, currently displays a supply-demand imbalance.
Diesel is one of the hottest sectors in the global energy market. Although refiners benefit from healthy profit margins, they still struggle to produce enough of this crucial industrial fuel.
The diesel issue can be traced back to the global COVID-19 pandemic. Demand shrank at that time, leading to the closure of many refineries. As consumption rebounded afterward, this portion of the supply permanently vanished.
The remaining refineries are still trying to ramp up production, but seasonal maintenance is once again hindering this effort.
Reports indicate that in the first two weeks of September, Russia's diesel exports have already dropped by a third. Due to peak refinery maintenance from late September to mid-October, the impact on diesel production is expected to continue.
Victor Katona, Chief Crude Analyst at market intelligence firm Kpler, stated that diesel supply in September would be 9-10% lower than the daily average in August, due to the shutdown of a few advanced refineries in the European region of Russia.
Katona mentioned that given the attractive prices for exported diesel, Russian producers would only supply the domestic market with the actual required diesel. In several major markets, the export price of diesel remains significantly higher than the $100 per barrel price cap set by the G7 for Russia's premium oil products.
Since mid-August, the price of Russian diesel has risen significantly, surpassing $102 per barrel, higher than international crude oil prices.
Supply restrictions will have economic consequences. Clay Seigle, Director of Global Oil Services at Rapidan Energy Group, noted that diesel fuels the 18-wheel trucks that transport products from factories to markets. Thus, when prices soar, higher transportation costs are passed on to businesses and consumers.
While there's growing hope that the U.S. economy can avoid a recession, surging energy prices, whether for gasoline or diesel, could derail this progress. Seigle added that the spike in diesel prices might also prompt refineries to prioritize this fuel at the expense of gasoline production.