After his meeting with Russian President Vladimir Putin, US President Donald Trump announced that Russia will provide additional diesel fuel to the US and world markets. The shipment plan announced by Trump envisages the immediate release of more than 300 thousand tons of diesel in the first phase, 500 thousand tons in November and larger quantities in the next phase. Following Trump’s statement, the US Treasury Department issued a temporary license allowing the sale, delivery, unloading and import of Russian diesel under certain conditions. General License 135, issued on 9 October, provides sanctions immunity until 7 April 2027 for transactions falling within its scope.
MARKETS RESPONDED QUICKLY
According to Reuters, one of the main goals behind the decision is to reduce diesel prices, which are approaching record levels in the USA. While the cost increase in diesel, which is used extensively in agriculture, land transportation and heating sectors, increases the pressure on consumers and businesses, it is also on the agenda of the Trump administration before the Congress midterm elections on November 3. The announcement that Russian diesel will be reintroduced to international markets was quickly responded to in the refined petroleum products market.. According to S&P Global’s market assessment dated October 9, the indicator showing the difference between the future price of ultra-low sulfur diesel and the price of crude oil in the USA decreased by $ 6.45 per barrel to $ 96.80.
THE PRESSURE HAS ESTABLISHED
However, according to evaluations made in the sector, this difference is one of the main indicators used to evaluate the margin obtained by refineries from diesel production. The decline indicates that the expectation of additional supply in the market has eased the price pressure on diesel. However, this move does not mean that pump prices will decrease at the same rate. Crude oil cost, refinery capacity, transportation costs, taxes and regional supply conditions continue to determine final prices. In the evaluations reported by Reuters, there are doubts about whether the additional fuel from Russia will be enough to permanently reduce prices. The market’s reaction depends not only on the announced quantity, but also on when and through which routes this fuel can be delivered.
SUPPLY MAY BE LIMITED
The realization of the expected diesel shipment from Russia is uncertain due to losses in the country’s refinery capacity. In S&P Global Energy’s assessment dated September 30, it was stated that Ukraine’s drone attacks disabled Russia’s refinery capacity of 3.1 million barrels per day. The organization reported that Russia’s refined product exports decreased to an average of 140 thousand barrels per day in the third quarter, remaining 500 thousand barrels below the level of a year ago.. According to the short-term energy outlook published by the US Energy Information Administration (EIA) on October 6, the retail diesel price in the US increased to an average of $6.29 per gallon in September. The institution reported that the increase was due to the widening of the gap between refined product prices and crude oil as well as crude oil prices.
