Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to the publication “Kursiv” (Uzbekistan) on the meaning of the US - Russia “diesel deal” for the global market and the supply of Russian diesel fuel to Central Asian countries.
How do you assess the agreements between Russia and the US on the supply of Russian diesel fuel? How realistic are the declared volumes, and will they be able to significantly affect global diesel prices?
It is not yet clear that the announced deal will have any significant impact on the real balance of supply and demand in international trade. The stated gradual increase in Russian exports reflects the natural recovery patterns under the conditions of the beginning seasonal decline in domestic demand.
In recent weeks, Russian oil refineries have been balancing on the edge of overstocking storage facilities, as production exceeds domestic demand. We do not know exactly by how much, but, unlike gasoline, the surplus of diesel fuel is obvious.
Despite the ban, some exports continued in the previous weeks and months, at least to Central Asia and Mongolia. So, this deal didn’t require any additional effort from Russia.
On the other hand, a truly important step for the market — although it’s mainly important for Russian companies — is the six‑month easing of sanctions on the export of Russian diesel fuel. But this won’t affect the demand for Russian fuel on the market in any way.
What will change for the global market after the possible lifting of Russia’s restrictions on diesel exports? How significant are the additional volumes given the current shortage of petroleum products and the damage to Russian refineries?
On a global scale, three factors may influence the decline in prices. The first is a reduction in demand. However, in many regions, including Europe, this reduction will be modest in the coming months. Despite the seasonal decline in diesel fuel consumption in transport, demand for liquid boiler fuels — gas oil, which is used for heating — is growing. This means an overall increase in demand for middle distillates, which includes diesel fuel. Therefore, demand will remain quite high over the next few months, at least until the end of December.
The second factor is the opening of the Strait of Hormuz and, in general, the lifting of restrictions on supplies from the Persian Gulf. This is the key factor that has led to the current crisis. But, as we can see, the Trump administration has not yet managed to resolve this problem, and the prospects remain uncertain.
In terms of crude oil, in September and early October we saw a rapid recovery in supplies using all sorts of gray‑market schemes. But, firstly, it is unstable and carries high risks. But the main point is that there is no such recovery for diesel fuel. The situation regarding its export from the Persian Gulf is much more complicated than with crude oil.
The third factor is the full recovery of Russian exports. But this factor directly depends on whether the painful strikes on Russian refineries continue.
As long as the strikes continue, diesel fuel production remains significantly below normal levels, and partial export restrictions will have to be maintained. A full recovery of Russian exports will likely take several months. At the same time, market spot prices reflect the expectations of market participants for a month, or at most two, ahead.
Could the resumption of large‑scale supplies of Russian diesel to the global market lead to a reduction in its availability or an increase in prices in Central Asia? How strongly do the markets of Uzbekistan, Kazakhstan, Kyrgyzstan, and Tajikistan depend on the export policy of Russian oil refineries?
In terms of the physical volume of exports to the countries of the region, I believe there will be no fundamental changes. Wholesale prices on the St. Petersburg Exchange may rise: even a partial reopening of exports will put upward pressure on domestic wholesale prices in Russia. Although this pressure will be сдерживаться by the actions of the government, which has various levers of influence: the discussed moratorium on resetting the damper, antitrust regulation, and the threat of new export bans.
Therefore, there will be no uncontrollable price growth, but some increase is possible. In particular, it may affect contracts tied to the exchange indicators of the St. Petersburg Exchange.
Kyrgyzstan and Tajikistan depend the most on supplies from Russia. Uzbekistan is in third place, and Kazakhstan is the least dependent, as it mainly meets its own needs. From the perspective of the impact of the fuel crisis in Russia, the situation varies from country to country.
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