By Nicole Jao, Arathy Somasekhar and Jarrett Renshaw
NEW YORK, Oct 21 (Reuters) – President Donald Trump’s deal with Russia to supply diesel to US and global markets is unlikely to meaningfully lower diesel prices, market watchers and analysts said, noting that the promised volumes are too small to ease a global supply squeeze.
Diesel prices have shot to record highs during the US-Israeli war on Iran, creating a political liability for Trump and his Republican Party as they campaign to maintain thin majorities in the US Congress in the November 3 midterm elections.
Critics of Trump’s move said lifting sanctions on Russian diesel could help Moscow fund further attacks on Ukraine, undermining years of efforts to curb Russian energy revenues and raising the risk the Kremlin could profit while consumers get little relief from high fuel prices.
Trump said Russia would immediately export 300,000 metric tons, or 2.25 million barrels, followed by 500,000 tons in November and 1 million tons “immediately thereafter”. Analysts have said it may not be possible for Russia to produce enough excess diesel in the near-term to meet those ambitious goals, while a strained global tanker market may also make timely shipments difficult.
Analysts also said the announced volumes are unlikely to meaningfully lower diesel prices. US retail diesel prices topped $6 a gallon in September for the first time ever and have remained above that level since.
BIG PROMISES, LIMITED IMPACT
Michelle Brouhard, head of policy and geopolitical risk at Kpler, said it would take an additional 400,000 barrels per day of diesel supply to materially ease prices in the current market. But the initial shipment of roughly 2.2 million barrels would amount to only about 73,000 bpd if distributed over a month. She said that volume on its own would probably not significantly affect global diesel prices.
Caspian Conran, lead economist at consulting firm Baringa, estimated that the market would require an additional 850,000 bpd of supply to produce an immediate softening in prices.
Trump initially said Russia would immediately supply diesel to the US and global markets to help bring down fuel prices, but later said the Russian cargoes would be released to global markets rather than shipped to the US. This raised questions about whether the deal will deliver the domestic supply relief the president promised.
“The diesel that Putin was going to sell, they were going to make it available to the global market one way or the other,” Secretary of State Marco Rubio said over the weekend. “The only difference is how much of it the US was going to get.”
White House spokeswoman Taylor Rogers said Trump announced that “massive amounts” of Russian diesel will supply the global markets and will lower prices at home and abroad. “President Trump continues to secure good deals, not just for the United States, but for the world,” Rogers said.
STRAINED REFINING SYSTEM, HIGH FREIGHT RATES
It was unclear whether Russia can substantially increase diesel exports in the near term due to limited Russian export availability and elevated freight costs.
Shipping data on Tuesday showed some Russian diesel cargoes were returning to their traditional destinations after the US suspended sanctions and secured the lifting of an export ban. At least two tankers were signaling trips to Turkey and Brazil.
Data also showed Russia has resumed diesel export loadings from the Baltic port of Primorsk following an agreement between Washington and Moscow to supply fuel to global markets.
Disruptions to diesel exports from Russia, the world’s second-largest diesel exporter after the US, and the Middle East reached 1.3 million barrels per day in September, about 4.5% of global diesel and gasoil demand. The International Energy Agency has warned shortages could persist into 2027.
“We question whether Russia’s refineries could even support an increase in exports with, by some estimates, up to 45% of Russia’s refining capacity currently offline,” said Mary Melton, an analyst with tanker company Braemar.
Delivering the announced volumes in addition to existing exports would require Russia to produce roughly 384,000 to 509,000 barrels per day of diesel, the Energy Policy Research Foundation said in a note. Russia currently produces about 1.4 million barrels per day and consumes roughly 1.2 million barrels per day domestically, leaving little surplus available for export.
Traders noted the country is currently importing distillates and lacks sufficient production and surplus volumes. While an end to attacks could allow damaged facilities to begin repairs and eventually return to international markets, sources said that is unlikely to happen before the end of the year, a view widely shared across the market.
Ukraine resumed its attacks on Russian refineries last week with a strike on a plant in the Ryazan region.
Moreover, freight rates for Russian oil and fuel exports have also risen sharply amid heightened security risks in the Black Sea. A tight global tanker market has also raised the cost of moving cargoes.
Many tanker owners and operators are probably reluctant to move Russian diesel on their ships, fearing future customers may shun the ships due to worries of having moved sanctioned cargoes, a source at a tanker owner said. While Trump has temporarily removed US sanctions, he noted, other Western nations still have sanctions in place.
(Reporting by Nicole Jao in New York, Arathy Somasekhar in Houston and Jarrett Renshaw in Washington; Additional reporting by Gram Slattery in Washington; Editing by Liz hampton and David Gregorio)
