Dark and Cold, Europe’s self-goal with the ban on Russian oil

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Due to the sharp rise in energy prices, consumers across Europe save gas and do not turn on the electricity in their homes. The diesel is fast running out. Bloomberg estimates that there are only 40 days of diesel left in the E.U. There is practically nothing to replace deliveries from Russia. 

Russian diesel supplies

Diesel is a key fuel for all industries and agriculture. Russia sells 750 thousand barrels per day to Europe. Russia accounts for nearly half of Europe’s diesel imports, Russell Hardy and Torbjörn Törnqvist, chief executives of Vitol and Gunvor, said at the F.T. Commodities Global Summit.

Saudi Arabia, the second-largest supplier, accounted for only 12% of imports in 2021, according to FGE. According to the French Association of the Petroleum Industry (UFIP), France imported 25 million tons of diesel fuel in 2020, a quarter of which is Russian. The U.K. is 18% dependent on diesel imports from Russia and Germany by almost 30%.

The U.K. has said it will phase out imports of Russian oil and petroleum products by the end of 2022. Europe’s largest economy Germany intends to halve Russian oil imports by June and coal supplies by this fall. In addition, the European Union is considering imposing an oil embargo on Moscow. And as E.U. calls for an energy embargo grow louder, European companies themselves are seeking to avoid Russian energy.

This will exacerbate the already difficult situation in the European diesel market, said Torbjörn Törnqvist.

Stocks are running out

According to the International Energy Agency (IEA), there were 247.4 million barrels of diesel fuel in European countries at the end of January. As per Bloomberg, this amount is enough for 40 days. The consequences of the deficit were not long in arriving. In most E.U. countries, diesel has become more expensive than gasoline. According to the European Commission, this happened for the first time in 15 years. So, in mid-March, diesel cost € 2.312 per litre at a gas station in Germany.

European Consumers react

In Spain, a sharp rise in diesel prices resulted in massive protests by workers in the transport industry. Truckers blocked the roads and demanded to stop the rapid rise in prices for gasoline and diesel. In a month in Spain and France fuel has risen in price by 15%. In the U.K., gasoline prices have reached historic highs of over £1.67 ($2.2) per litre. In Germany, drivers of commercial vehicles staged a rally to protest against the increase in gasoline and diesel fuel prices, which broke records. According to the all-German automobile club ADAC, such rapid growth is observed for the first time in German history. The fact that it is necessary to slow down the oil and gas anti-Russian hysteria has already been warned by the head of the German Ministry of Economy, Robert Habeck. 

Emergency oil sourcing issues

Before the pandemic, the U.K. supplied almost half of domestic demand for middle distillates with imports, according to Eurostat. And nearly a third of all supplies came from Russia. The country will have to find alternative sources to get about 100 thousand barrels of diesel per day, equivalent to the volume of loading one tanker.

The problem is not only in quantity but also in the fact that reserves are unevenly distributed. Someone will cover before others. For example, Finland and Denmark will have enough for more than half a year, while Great Britain and Norway – barely a month.

European oil companies are trying to find volumes even in the Middle East, Asia, and the USA. The traders, alarmed by the bleak outlook, are paying huge premiums to snap up their stocks. The depletion rate of these reserves will directly depend on how successful the attempts to replace supplies are.

No alternatives

However, European countries actually have no alternative sources of diesel fuel supplies. And, as analysts predict, the situation will only worsen.

Alternatively, it can increase oil refining, but here, too, there is a problem. Oil from Russia is banned due to sanctions imposed on the Russian oil companies. Europe will not be able to expand its oil production. Even if old wells are reactivated, the flow rate is too low.

“It will be difficult for European refiners to increase their output of middle distillates, including diesel and heating oil,” confirms John Cooper, CEO of Fuels Europe, a division of the European Refiners Association. Therefore, he said, “other diesel sources should be found, probably at higher prices.”

But, the purchase of oil for storage is not prohibited under the current sanctions regime.

The E.U. is ready to abandon carbon neutrality “Green Deal” may fail due to anti-Russian sanctions. Europe could try to increase the export of oil from the US, Africa and the Middle East, but increasing production may take a long time, and tankers may not be enough. At the same time, not every oil is suitable for European refineries, and besides, the expansion of supplies to Europe may cause a fuel crisis in other regions of the world. Venezuela and Iran are still under sanctions, at the risk of falling under them as well. Even if sanctions are removed, prices can skyrocket by the time production increases and it is delivered to European ports.

Russia is the only short term option

For Europe, there is only one way out by continuing to buy diesel fuel in Russia, passing it on documents as products from Turkey, Azerbaijan or somewhere else.

Despite the decision of several companies to introduce “self-sanctions”, the flow of Russian oil products will continue, and it may remain at the same level, European market sources told Reuters. “There is simply not enough diesel; we cannot afford not to take Russian fuel. They don’t want Russian oil, but if there is no alternative, then they will take it,” said the source.


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