The EU has already suspended the import of Russian oil. But the suspension of imports of petroleum products such as diesel, effective from Sunday, will cause more problems for her. Will China, Turkey and India make it more bearable?
As of Sunday (February 5), the EU no longer buys diesel and other petroleum products from Russia, as the USA and Great Britain already do. This is linked to a certain maximum price for oil and oil products – no more than $100 per barrel of refined diesel. Russia's countermeasure: it will not sell oil to countries that have limited prices.
Of course, sanctions and the suspension of imports from the West are costing Russia. The president of the European Commission, Ursula von der Leyen, estimates that the Kremlin is already losing about 160 million euros every day. But it was already clear to everyone that Russia would find a market for both oil and its derivatives, and that such Russian oil would also end up in the EU.
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Because there were no major difficulties when determining the highest price of oil on December 5 last year, but the interruption of the import of oil derivatives - especially diesel, caused great uncertainty in the market, especially since German diesel-fuel warehouses are at the lowest level in history.
It was cheaper to import
Eugen Lindel and Joshua Folds from FGE say that Russia has been trying for a long time to offer significantly more expensive derivatives instead of cheap oil, and that Western consumers "got used" to that offer and significantly reduced their refinery capacities.
"It is quite complicated to produce diesel, heating oil and other derivatives, while the production of crude oil is simple and much more variable. However, there are many types of crude oil on the world market from which these oil derivatives can be produced".
The price of diesel has been high for a long time, and now everything depends on whether the EU will find an alternative - and how quickly Russia will find another market. Although there are no major concerns due to the mild winter, it can easily be expected that the price of diesel will rise even more. At least it will take some time until the derivatives arrive from other countries, and oil refining processes in the EU are significantly more expensive than what Russia offered.
"Washing" of Russian diesel
"The market is very sensitive and scared right now," analysts tell us. "We must first wait and observe how the destinations for Russian oil change, without long-term interruptions in delivery. But when the market realizes that this has happened, it will calm down."
Until Russia's attack on Ukraine, the EU imported almost half of its diesel from Russia. That share has decreased in the past 12 months, but it is still a significant amount – about 200 million barrels in 2022, according to analysts' estimates. The suspension of EU imports creates a deficit of around 600.000 barrels of diesel and oil derivatives - per day.
The EU has long since started acquiring derivatives from other sources – from the Middle East, Asia and the USA, but even those sources are already burdened. It is clear to everyone here that indirect import is largely diesel-washing. For example, Turkey does indeed have significant capacities for oil processing, but the diesel fuel imported from that country is actually a mixture of "Turkish" and Russian diesel, of course with a commission to Turkey.
India and even China operate similarly: India is happy to buy Russian oil and derivatives because the Russians are also forced to lower the price and sell that diesel to the West with even greater joy. In addition to the favorable price, the cost of processing and storage in India is significantly lower, so that the export of diesel to the EU has grown significantly since the beginning of the war. This was best seen during the strike in French refineries and when the import of diesel from India jumped overnight, actually a country that hardly belongs to the traditional supplier of petroleum products.
Better calculation when processing
China also normally refines oil primarily for its own needs, but in these circumstances that has changed: Beijing has officially raised its export quotas for oil derivatives. "China's business policy could change the state of the entire market," says Mark Williams of Wood Mackenzie. Because it is a country that "holds in its hands the key to the processing capacities of the global market".
All in all, the EU pays for more expensive fuel, but that money does not go to Russia. Especially when it comes to derivatives, third countries prefer to buy crude oil because they themselves have the capacity to process it. "Russia is already forced to offer its diesel at a heavy discount in order to sweeten purchases even in those countries that don't really need that fuel," believes Eugene Lidel.
These are the countries that maybe really need Russian diesel - such as countries in Africa or South America, but there is also Turkey, which apparently already buys from the Russians in advance in order to sell that "Turkish diesel" to the EU. Lidel can clearly see this from the statistics, where Turkey has been increasing its imports from Russia for months.
How much of a discount is Moscow ready for?
"Those countries are ready to buy such cheaper diesel," says Liddell, so some experts do not expect a significant drop in Russian oil exports. But other experts are not sure.
The whole point of Western sanctions was never and could not be a direct blow to Russian trade, but to force it to use intermediaries. Mark Willijmas does not notice any significant impact in Russian oil refining capacities either, but also because $40 for a barrel of refined oil "is still a peppery price. At that level, prices and Russian refineries are still doing well, so there is still interest there. refine their own oil".
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