A ceiling hung over diesel fuel – Newspaper Kommersant No. 7 (7452) dated 01/17/2023

On the eve of the EU embargo on Russian oil products, wholesale prices for diesel fuel in Russia fell to a minimum since the end of 2020. So, on January 16, the stock price of diesel fuel decreased by 1.5%, to 43.5 thousand rubles. per ton. The authorities attribute the decline in prices to seasonal factors, but, according to Kommersant’s interlocutors in the industry, such dynamics may be due to a reduction in supplies to Europe due to the embargo entering in less than three weeks. A similar situation has already occurred with oil prices in December due to a sharp reduction in supplies to the EU.

The cost of diesel fuel on the SPIMEX exchange on January 16 fell by 1.5% to 43.5 thousand rubles. per ton, to the lowest value since December 2020. In general, diesel fuel lost about 30% of its value over the year, including about 10% since the beginning of 2023. Prices for summer diesel fuel traditionally decrease in winter due to reduced demand and the transition to frost-resistant varieties. However, the Russian Federation has traditionally been the main supplier of this type of fuel to Europe: usually in winter, more than half of its output was exported, and annual deliveries to European countries reached 40 million tons.

According to Kommersant’s sources in the oil industry, diesel fuel is getting cheaper due to a decrease in demand from European buyers on the eve of the EU embargo on petroleum products, which will come into force on February 5.

Since December 5 last year, the price ceiling for oil from the Russian Federation has already been in effect, and buyers are waiting for a repeat of the situation with falling prices for petroleum products, as has already happened with Russian oil, one of Kommersant’s interlocutors believes. “For oil, the main problem is the high discount as a result of high freight rates. That is, the cost of freight has grown quite strongly due to the risks that carriers and counterparties experience regarding possible sanctions in accordance with the fact that they do not set a price ceiling. But I hope that this situation will be temporary. The discount should decrease over time, as we observed during 2022, when the discount grew strongly in March and April, then it began to gradually fall and halved,” Deputy Prime Minister Alexander Novak said on January 11.

According to Bloomberg, part of Russian diesel fuel volumes will be replaced by supplies from China, which is one of the largest buyers of Russian oil. At the same time, according to the agency, last year the supply of Russian diesel fuel to Europe fell to about 30 million tons. According to Alexander Novak, at the same time, the production of diesel fuel in 2022 increased by 6%. At the same time, the retail price of fuel increased by almost 10% last year.

The FAS told Kommersant that the decrease in the wholesale (exchange) price for summer diesel fuel is due to a seasonal factor. Also, at the suggestion of the FAS, measures were taken “in terms of developing a mechanism to limit the export of fuels if there is demand for them in the domestic market,” the service noted.

The largest drop in diesel prices last year occurred in March amid problems with the sale of petroleum products due to sanctions against Russia for military actions in Ukraine. However, while gasoline prices were steadily declining all last year against the backdrop of a surplus of goods, the cost of diesel fuel recovered in April as oil companies solved their problems with shipments. Due to the persistence of high prices for this type of fuel, for almost the entire year, filling station operators suffered losses in its sales. In September, diesel fuel prices almost reached the maximum of 59 thousand rubles. per ton, and then, as the seasonal decline in demand, they began to decrease.

Demand for diesel fuel in Russia is seasonal, in winter in Central Russia, the Urals and Siberia, consumption drops markedly, while exports grow, said Sergey Kondratiev from the Institute of Energy and Finance. In the winter months, up to 60-70% (2.5-2.7 million tons) of all summer diesel fuel produced is exported, the main volume (over 80%) goes to the EU countries. Now buyers from the EU are preparing to impose sanctions on the import of petroleum products from Russia and, probably, have already begun to reduce purchases, which led to an increase in supply within the country and pressure on stock prices, the expert believes.

Dmitry Kozlov