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Russian diesel opacity rises as oil traders limit public trades

Shipments from key Russian ports fall 10% as traders exit public markets

Diesel from Russia, the world’s second-largest exporter after the US, still sailing for Europe even as sales, bids and offers made in public markets collapse

OIL traders in northwest Europe and the Mediterranean have stopped buying or selling diesel cargoes from Russia in open trading, accelerating opacity in the global middle distillates market.

The global shortage of middle distillates, which include diesel, jet fuel and gasoil, is driving the rebound in freight rates for the global fleet of product tankers.

Medium range tankers trading in the Atlantic basin can secure spot earnings 200% higher than pre-invasion levels as recalibrating trades coincide with increased consumption of land and air transport fuels.

Russia is the world’s second-largest exporter of gasoil and diesel after the US, at 900,000 barrels per day according to Joint Organisation Data Initiative figures, with more than one third of the European Union’s imports supplied in seaborne trade via Russia.

Not only are cargo sales, bids and offers made via public trading visibly reduced, but also so are numbers of participating oil traders, according to data compiled by London-based price reporting agency General Index. Shipments from Russia’s Baltic and Black Sea ports have held steady.

“Compared to the old days the volume of diesel exported from Russia is down but probably only by 10%,” said to Simon Pratt, a UK-based middle distillates analyst tracking where tankers discharge.

Nearly all cargoes sail for Europe with Germany, the Netherlands and Poland the top three destinations since February 24, according to Mr Pratt. European Union and UK embargoes on seaborne oil and products are being phased in from the end of the year.

In recent weeks only one oil trader, Vitol, has offered diesel for sale in the so-called market-on-close (MOC) window under terms that include Russian-origin cargoes, General Index analysis shows.

The number of oil traders participating in the MOC dropped to three for the week ending July 1, compared with 11 at the end of February.

The MOC is used worldwide under global price-reporting assessment methodology to set wholesale prices for refined products and oil.

Prices at which oil traders bid, offer or buy oil or products in sizes via cargoes on tankers or on barges are collated daily and used to assess a delivered or free-on-board price. 

In Europe, offers to buy or sell diesel with 10 parts per million of sulphur, known as 10ppm diesel, are made via a price differential to the futures price for low-sulphur gasoil on London’s Intercontinental Exchange. Cargo sizes range from 10,000 tonnes to 40,000 tonnes.

Diesel 10ppm cargo trades concluded in the MOC numbered 14 in January and 10 in February, according to General Index. No trades have been seen since three were recorded in May. Four were done in April and one in March.

Since June 1, price assessment methodology excluded Russia from primary indices, reflecting earlier measures by oil companies including BP and Shell to bid or offer for cargoes under terms that excluded Russia-origin diesel.

Shell’s trading division was the first, during the week beginning March 21.

Demand for middle distillates which comprise nearly 40% of seaborne trade in refined products, is expected to outpace supply until 2024, according to the latest monthly report of the International Energy Agency.

Germany has imported 30 cargoes of 10ppm diesel from Primorsk since the invasion, according to Mr Pratt. That is followed by the Netherlands with 28, Poland with 24 and France with 20. The UK has imported 12 cargoes, the most recent on May 29.

While oil prices have crumbled this week on concerns the world is heading into a recession, gasoil futures against which diesel and jet fuel are priced have held up, reflecting increased demand.

Yesterday Brent crude closed 4.2% above its price three months ago, ICE Brent figures showed, while gasoil was 27% above its April price.


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