Russian Diesel Discount Generates Significant Margins in Two-Tier European Trade – Reuters

By Ron Bousso and Rowena Edwards

LONDON – Russian diesel is being sold at a substantial discount compared to fuel from other nations, creating a potentially profitable opportunity for some traders ahead of a possible European Union ban on oil from Moscow.

While major companies such as Shell, BP, and TotalEnergies have announced they will cease buying Russian oil and refined products, other traders continue to engage in transactions involving Russian oil, as indicated by industry documents and sources.

The EU has a significant dependence on Russian diesel, accounting for roughly half of its total imports as of May, and it has not yet reached a consensus on banning Russian oil, with some member states opposing such action.

Currently, trading in Russian diesel does not violate any EU sanctions. However, this trading window could narrow, as some companies are planning to reduce their acquisitions of Russian oil products starting May 15, aligning with existing EU sanctions aimed at restricting Russia’s access to the global financial system following its invasion of Ukraine in February.

In recent weeks, Russian diesel has been sold to Britain, France, and the Netherlands, with discounts reported at around $30 per tonne compared to non-Russian fuel, according to several traders and brokers. This discount could lead to a profit margin exceeding $1 million on a standard diesel cargo compared to one of non-Russian origin.

On the Platts trading platform, bids for non-Russian diesel for delivery to the French port of Le Havre were reported at a premium of $42 per tonne above the June diesel contract. In contrast, an offer for a diesel cargo of unspecified origin for delivery to Hamburg was at a premium of $23 per tonne above the same benchmark.

Despite this, the flow of Russian diesel to Europe has significantly decreased in recent days, primarily directed to the Amsterdam-Rotterdam-Antwerp refining hub, as described by a trader who noted the opacity of these flows.

The refining margin for turning crude oil into diesel in Europe reached a remarkable $90 per barrel earlier this year and currently stands at $50 per barrel, as traders avoid Russian diesel, on which Europe remains heavily reliant.

A similar pattern has been observed in the gasoline market, though Europe imports limited quantities of Russian gasoline. Recently, premium unleaded gasoline from non-Russian sources was priced at $1,197 per tonne, compared to $1,157 and $1,158 per tonne for fuel of unspecified origin.

The divergence in the diesel market mirrors trends in the crude market, where Russian Urals oil is trading at historic discounts relative to other grades, according to Jonathan Leitch, an oil market analyst with Turner, Mason & Co.

Leitch explained that the discount is not merely based on quality but relates to usability and marketability, which also applies to Russian diesel products.

While engaging in Russian oil trading does not currently violate sanctions, it carries its own risks. Tankers transporting Russian oil and gas have recently faced barriers to offloading in British and European ports due to actions taken by authorities or port workers.

Leitch also mentioned that banks may decline to finance purchases of Russian diesel, adding further complications to the trade.