Europe is heading for a diesel shortage

[SINGAPORE] Europe is facing the prospect of a shortage of diesel as flows from Russia dwindle in the aftermath of its invasion of Ukraine, senior executives at two trading houses said.

Europe's leading diesel external supplier has seen its exports of crude oil and petroleum products slide by about 2 million-2.5 million barrels a day since the invasion, Trafigura Group chief executive officer Jeremy Weir said at the Financial Times Commodities Global Summit on Tuesday.

"That's affecting greatly the amount of product here in Europe," Weir said. "The diesel market is extremely tight. It's going to get tighter and will probably lead into stock outs."

European diesel stockpiles are expected to fall to the lowest level since 2018 this month, according to Energy Aspects, a consultant. About 500,000 tons of Russian diesel exports are at risk in March, the firm said in a presentation, leaving "physical supply tighter than ever." At the same FT event, Gunvor Group chief executive officer Torbjorn Tornqvist said Russian refiners are trimming their oil output, threatening to exacerbate what is already short supply in Europe's diesel market.

"This is a global problem but for Europe it's very hard because Europe is so short," he said.

Supplies of the fuel are still flowing from Russian refineries to Europe but the trade is becoming more challenging. Shipping companies, banks and buyers are shying away from dealing with Russian energy products in what is being termed "self-sanctioning," following the invasion.

"That will force Russian refiners to cut back, in fact we already see that," Tornqvist said. "What does that mean? It means more crude oil will need to be exported instead of the products, and we believe that is not possible and will lead to cutbacks in Russian production."

Diesel prices in Europe have surged in recent weeks. Earlier in March, futures jumped to a record as fears of supply disruption from Russia compounded an already tight market. Heating oil prices in Germany were up more than 50% week-on-week through March 14. BLOOMBERG