An upcoming EU embargo on Russian refined oil products has already started to reroute diesel barrels, as the bloc is being supplied with more diesel from Saudi Arabia and the United States, and Russian diesel supplies are likely to find homes in Africa, the Mideast and Latin America, according to data compiled by Anadolu Agency (AA).
The EU will impose a ban on imports of Russian diesel, jet fuel and other oil products that will come into effect on Feb. 5.
The G-7 is also working on price caps on Russian petroleum products planned to be effective on the same day. The exact levels of price caps are not certain, but U.S. Treasury Secretary Janet Yellen said last week that price caps on oil products from Russia are more complicated than the price cap that was already imposed on seaborne Russian crude in December.
She mentioned two separate price caps on petroleum products from Russia, one being on high-value and the second on low-value products.
As the days count down to the EU's ban on Russian refined oil products, data shows that the EU's diesel imports from Russia have not seen a dramatic fall since the start of the war and Russia is still the largest diesel supplier of the bloc.
"In total, Russia remains the largest supplier of diesel at 550,000 barrels per day. However, it is already trending down as some buyers cut down on purchases before the sanctions deadline kicks in," Viktor Katona, the lead crude analyst at Kpler, a commodity data and analytics firm, told AA.
"Month-over-month, the exports are down some 170,000, though it needs to be said that December 2022 saw the highest import level from Russia since early 2020, as pretty much everyone is stocking up before the sanctions kick in," he said.
Kpler data shows the EU's diesel imports from Russia in December stood at 719,456 barrels per day (bpd), while they dropped to 542,114 bpd on Jan. 1-18.
Russia's diesel exports to the EU, Norway, Switzerland and the U.K. in total are estimated to be 615,873 in January, according to real-time data tracker company Vortexa.
"Total European diesel imports have been much higher over the last four months than usual, by about 400,000 barrels per day, compared to the October-January periods in the previous two years. This compares to 600,000 barrels per day of diesel coming from Russia over the last four months on average," David Wech, Vortexa chief economist, told AA.
"Therefore it could be said that over the last four months, Europe has already procured replacement barrels at a rate of two-thirds of the typical needs."
Diesel deliveries to European countries almost triple
As European countries, who import about 2.5 million barrels of diesel per day, need to fill the gap in Russian supplies, the U.S. and the Middle East countries are emerging as potential big supplies.
Vortexa data shows Saudi Arabia is in second place in terms of diesel exports to European countries with 267,000 bpd by January.
Saudi diesel exports to European countries were at 88,540 bpd in March 2022 and showed a constant increase after the start of the war last February.
U.S. diesel deliveries to European countries were 156,727 bpd by January, almost tripling its levels of 54,438 bpd in March 2022. The U.S. diesel supply to European countries saw its highest level in more than two years.
"Saudi Arabia is producing some 1.3-1.4 million barrels per day of diesel but has roughly 600,000 barrels per day of the domestic market and needs to balance its European and Asian commitments, so the upside is limited," Katona said.
Kuwait is looking to commission its Al Zour refinery with 615,000 bpd production capacity, which is expected to be diesel focused, Katona said, but so far only the first distillation unit is fully functional, with trains two and three delayed later into 2023.
EU Commissioner for Energy Kadri Simson said last week that Kuwait's intent to boost diesel exports to Europe "fivefold is an example of how the continent has successfully sought to diversify its fuel sources."
Africa, Mideast
Katona said that U.S. diesel production is about 5 million bpd, with the domestic demand trending around 3.8 million-4 million bpd.
"So, there is roughly 1 million barrels per day of diesel that is free for exports. Historically, most U.S. diesel exports have been going to Latin America, Brazil and Mexico, being the largest buyers. More diesel into Europe would most probably mean more Russian diesel going into Latin America," he said.
He noted that there is enough diesel in the markets but if Europe is to be supplied fully, then previously existing flows should be rerouted.
Wech detailed the data on export volumes from several regions. The Middle East exports about 400,000 bpd out of its total exports of 1.4 million bpd, the U.S. delivers about 150,000 bpd out of total exports of 1.2 million bpd and Asia roughly sends 200,000 bpd of diesel out of a total 1.4 million bpd of diesel exports to European countries.
"So far, Europe has barely reduced its buying from Russia, so it has taken both Russian and replacement supplies, tightening the global market. Going forward, Russian supplies are likely to find homes, in Africa and the Middle East, freeing up respective barrels for export to Europe," he said.
Wech also noted that even though prices will "remain relatively high to attract all the necessary long-haul arbitrage inflows," Europe will get the diesel supplies it needs under the current market conditions.
Turkish refineries
Türkiye is one of the countries that boosted diesel exports to European countries, according to Vortexa data. The country's diesel exports reached 64,277 bpd by January, from its 30,391 and 53,916 bpd in February and March 2022, respectively.
"Türkiye plays only a minor role in diesel exports, being itself a net-importer of diesel," Wech said.
STAR Refinery, located in the Turkish Aegean city of Izmir, has an annual capacity of 5 million tons of diesel, while Turkish refiner Tüpraş also operates with a high diesel production capacity.
According to Katona, "Türkiye has arguably the highest chances of becoming Europe's 'creative supplier.'"
"Because Türkiye's refineries are very much diesel-focused. They can send their own products to EU countries and then import discounted diesel from Russia. In times when global competition intensifies, this would create a huge competitive edge for Türkiye's refiners in terms of profitability."
Katona said countries like Türkiye, Egypt and Algeria could become a trans-shipment hub for Russian diesel.
"That could ease the disruption in flows and given the current wording of the sanctions, there is only limited manipulation required to transform Russian diesel into, say, Turkish diesel or Egyptian diesel," he added.