Global markets face a squeeze on diesel because of sanctions on Russia, with Europe most at risk of a “systemic” shortage that could lead to fuel rationing, the world’s top trading groups have warned.
The heads of three of the largest commodity traders – Vitol, Gunvor and Trafigura – estimated that as much as 3 million barrels of oil and its products a day could be lost from Russia as a result of sanctions, following the country’s invasion of Ukraine. The corporate leaders were speaking at the FT Commodities Global Summit in Lausanne, Switzerland.
“Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East,” said Russell Hardy, chief of Switzerland-based oil trader Vitol. “That systemic shortfall of diesel is there.”
These Russian imports account for roughly 15 per cent of Europe’s diesel consumption, while crude oil from Russia is also processed by refineries on the continent.
Mr Hardy said the shift to more diesel consumption over petrol in Europe had created shortages of the fuel. He added that refineries could boost their diesel output in response to higher prices at the expense of other oil-derived products to shore up supply, but acknowledged that rationing was a possibility.
Torbjorn Tornqvist, co-founder and chair of Geneva-headquartered Gunvor Group, said: “Diesel is not just a European problem, this is a global problem. It really is.”
Jeremy Weir, chief executive of Singapore-based Trafigura, said that 2 million-2.5 million barrels of Russian oil production would go missing from the global market, split between crude and refined products. “The diesel market is extremely tight. It’s going to get tighter,” he added.
Amrita Sen, chief oil analyst at Energy Aspects, said “diesel is by far the worst affected” of the oil products because Europe imports close to 1mn barrels a day of Russian diesel and the world entered the conflict with near record low stocks of oil.
French oil major TotalEnergies said, unless it received instructions to the contrary from European governments, it would terminate its Russian diesel purchase contracts “as soon as possible and by the end of 2022 at the latest”.
“TotalEnergies will import petroleum products from other continents, notably its share of gasoil produced by the Satorp refinery in Saudi Arabia,” the company said in a statement.
Mr Tornqvist said that European gas markets were no longer functioning properly, as traders faced huge demands from banks for cash to cover hedging positions.
“I think it’s broken,” he said. – Copyright The Financial Times Limited 2022