Reserve for durability: why global prices do not drive up the cost of diesel in Russia

Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to the newspaper “Izvestia” on the reasons for the rapid rise in diesel fuel prices on foreign markets and the possible consequences for the Russian market.

As a result of disruptions in the supply of petroleum products from the Middle East, the global market lost about 20 % of its diesel supply, Alexey Belogoryev estimated. An additional factor was the reduction in Russian fuel exports. Before the restrictions were introduced, our country accounted for about 10% of global supplies, the expert noted. Previously, Russian diesel was exported, in particular, to Brazil, Turkey, and African countries. Now, under intergovernmental agreements, supplies are mainly directed to EAEU countries and Mongolia.

At the same time, global gasoline prices react to geopolitical events less strongly than diesel prices. This is due, in particular, to the high seasonal demand for diesel fuel from agriculture during the sowing campaign, which takes place at this time of year around the world, the expert noted. Furthermore, the countries of the Persian Gulf and Russia play a smaller role in global gasoline trade than in diesel supplies. Prior to the restrictions introduction, Russian gasoline accounted for about 1–2% of global trade in this type of fuel.

The current ban on diesel exports prevents Russian oil companies from taking advantage of high global prices and increasing revenues from foreign supplies. This does not significantly affect the companies’ current revenues thanks to the damper, but they lose the opportunity to generate additional profits from exports, Alexey Belogoryev explained. If the restrictions are lifted after global prices have already fallen, oil companies may not have time to take advantage of the favorable external environment.