Russia mulls diesel export ban again; Asian gasoil complex to see limited impact

The Asian gasoil market will likely see a limited impact if Russia bans the export of diesel for a second time as there is ample supply in the market amid a seasonal demand lull.

The Russian government is considering a ban on diesel exports if domestic prices rise further, Russian daily Kommersant reported late July 24, citing several unnamed sources.

"Summer is the weak season [for gasoil]. If the export ban is carried out in Q4, it might have a bigger impact," a regional middle distillate trader said.

Industry sources highlighted that Russian refinery runs are usually high over July-August amid a lull in turnaround, leading to an uptick in diesel supply.

They added that Russia's preceding ban on diesel exports Sept. 21-Oct. 6, 2023 had demonstrated that Russia did not have enough storage capacity for a long-term ban.

Russia's diesel stocks were up 2% on the year to 1.96 million mt (471,032 b/d) in July, the country's energy ministry(opens in a new tab) said July 5.

"The last ban coincided with the winter heating demand period in Europe but even then the impact [on gasoil markets] wasn't that great because the sanctions on Russian oil products were in place much earlier and winter demand was quite weak," a regional gasoil trader said.

The EU's sanctions against buying Russian oil products were enacted on Feb. 5, 2023, as part of its response to the Russian-Ukraine war.

Europe has become increasingly reliant on the US for diesel since Russia's 2022 invasion of Ukraine, with sanctions on Russian oil forcing refiners and fuel marketers to rely on trans-Atlantic trade arbitrage economics to source enough supplies.

Saudi Arabia, India, and Turkey have also helped fill the regional diesel supply gap. Before the war, Russian diesel had made up more than 40% of Europe's total diesel imports. July levels of US diesel imports to the region now stand at similar levels, S&P Global Commodity Insights reported earlier.

Meanwhile, Russian diesel has found new homes in Brazil, Turkey, Africa, the Middle East, and Asia.

"Asia still has a surplus of gasoil so another ban on Russian diesel won't be great. Maybe it will help to move some of the India and Middle East barrels to the West of Suez so the oversupply situation will ease," a second gasoil trader said.

The front-month August gasoil exchange of futures for swaps spread was pegged by brokers at minus $25/mt at 0300 GMT on July 25, widening from minus $24.13/mt at the Asian close July 24, but narrowing from minus $27.61/mt at the start of the month, Commodity Insights data showed.

The EFS spread measures the gap between front-month Singapore 10 ppm sulfur gasoil swaps and the corresponding ICE low sulfur gasoil futures contract, and acts as a barometer for arbitrage flows from the East of Suez to Europe.

A deeper negative EFS spread signals cargo pricing is more competitive in the West than in the East and indicates viable East-West arbitrage economics.