African nations boosted the import of Russian oil products, including the all-important diesel exports, in January ahead of the imposition of the latest round of sanctions on Russian oil products. The outlook for the success of the EU’s oil product sanctions remains very confused as the market races to remake itself in the face of the new realities.
Russia is being forced to remake its oil export business after the EU banned all imports of crude on December 5 and at the same time followed up by launching and oil price cap scheme. The second phase of the energy sanctions has just come into force, when the EU banned all imports oil products on February 5 and imposed a similar price cap scheme on these much more widely distributed products.
Diesel is one the most important. The EU continued to receive more than a quarter of its diesel imports (about 612,000 barrels per day) from Russia in January, while the bloc comprised roughly 41% of the Russian export market in January and now must find new buyers.
In anticipation of the remake of the diesel market Turkey and several African countries have sharply increased their imports of Russian diesel. Analysts say these countries will anonymise this diesel and sell it on to customers in Europe and further afield through various means such as mixing with other diesels or further refining it.
Analysts at Kpler speculated that African nations, many of which support Russia or at least remain neutral, will consume more Russian diesel or export it back to the EU. In the same game of musical chairs, the EU will also start sourcing diesel from further away, from the likes of the US and Asia.
India has also become a major way-station on the round-the-houses routes Russian crude and products are being forced to follow to reach their traditional and newly acquired customers. India imported more Russian crude oil than ever in January, which it has been refining and selling on to the EU and the US, despite the ban on imports of “Russian” oil and its products. India imported between 1.27 to 1.42mn bpd of Russian crude, which comprised 28% of India’s supplies in January, the highest ever. Two years ago, India imported almost no oil from Russia at all.
Likewise, China’s privately owned refineries have massively increased their imports of Russian crude and are selling the refined products on to customers in the US and EU as well. Analysts are afraid of a combined fall in Russian supplies of diesel due to the sanctions coming on top of a Chinese economic rebound driving up demand there as the economy emerges from a year of COVID lockdown.
Exports of diesel and kerosene to Europe surged by a quarter in the last three months of 2022 compared with the previous quarter as Europe anticipated possible supply problems after the February 5 ban came into affect, according to the w. Diesel inventories in the key Antwerp-Rotterdam-Amsterdam region have risen to their highest level since October 2021, according to analysts at Redburn, as cited by the FT.
Diesel supplies are already tight, pushing up prices at the pump to well above petrol in many regions. European countries are among the world’s largest users of diesel relative to other motor fuels, reports the Financial Times. However, many European countries have been creating a cushion by stockpiling diesel ahead of the products ban, which was telegraphed well in advance.
Now Africa is emerging as another major way-station. Kpler told the Insider that it has already seen an uptick in volumes heading to Africa in January to countries including Senegal, Morocco, Tunisia and Libya.
Just before the EU decision to ban imports against Russian petroleum products, Turkey and Morocco already stand out as the most important importers of Russian refined products.
Turkey imported 213,000 bpd of Russian diesel in December, reaching its highest level since 2016, according to Vortexa Ltd. A similar trend was seen in Morocco, which has also noticeably stepped up imports of diesel from Russia.
Currently, Russia is the EU’s largest supplier and the upswing in imports by Morocco and Turkey to re-export to the EU will not be enough to offset Russia’s losses when European imports ceased.
However, determining what happens then is very hard, and as a result of the threat of secondary sanctions the oil product market has become very opaque. Several professional hydrocarbon newswires have had to start to resort to surveys and anecdotal reporting as traders and companies become reluctant to report on their deals volumes and price.
In addition to diesel, Russia produces a range of other refined products, including jet fuel and fuel oil, requiring separate price caps for each, and analysts say Russia will be forced to offer discounts on these products as well to find new buyers.
Source : bne IntelliNews
