Savvy business owners are buying generators in case of blackouts. Extra cans of diesel to run them will be needed too. Prices for a fuel used in everything from trucking to tractors is near record highs, reflecting tight supply. The EU ban on imports from Russia — the continent’s largest supplier of middle distillate products — will add further pressure.
The dearth is not limited to Europe. US diesel inventories are at historic lows and restrictions on product exports are not being ruled out. Shutdowns mean capacity at US refineries is currently running at levels last seen in 2014.
Capacity in Europe has also fallen. Supply outages and strikes have reduced output at remaining refineries. When Russian imports cease in February, a hole of about a quarter will appear in European diesel imports.
Diesel spreads remain historically high at around $40 a barrel against crude. A disparity with low petrol spreads is a function of high gas prices. Cracking processes require hydrogen made from expensive natural gas. Changes in available crude types have also had an impact.
About 400,000 barrels per day of seaborne crude from Russia will need to be sourced from elsewhere. Europe is likely to plug that gap with higher imports from Asia and the Middle East. India has bought around three times more Russian crude since February than it did last year. Exporters are making a lucrative trade. Refining margins in Asia peaked at $20 a barrel over the summer, thinks Janiv Shah of Rystad Energy.
Shippers are also benefiting. Russian producers of diesel and other products are seeking buyers a long way from Europe. Tonne-miles covered by “clean” tankers carrying products may grow by 10 per cent in total as a result, thinks Morgan Stanley. Shipping rates near record highs also coincide with limited numbers of new tankers coming into service.
Tight diesel supply will contribute to inflation. The rub for European consumers is that rules intended to keep out diesel made from Russian oil will only result in them paying higher prices for the fuel.