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Europe increased its imports of Russian diesel fuel by 22 percent in July, year over year, to almost 700,000 barrels a day, the Financial Times reported.
Since Russia’s invasion of Ukraine, the 19-country European Union (EU) has vowed to end imports of Russian natural gas by the end of this year, of Russian diesel by February, and all Russian petroleum products by 2030.
However, the 12-month growth in Russian diesel imports indicates how challenging it will be for the EU to do without Russia’s diesel less than seven months from now, the FT noted.
Russia accounts for the majority of Europe’s diesel imports and 15 percent of its consumption, according to oil market data service Vortexa.
Europe lost refining capacity during the COVID War and so has had to increase imports.
The “key question” is whether U.S. refiners will raise production for export to Europe now that prices there have jumped, Vortexa chief economist David Welch told the FT.
The margin between Brent crude oil prices and the price of diesel is $35, while the gap between Brent and gasoline is only $20, data from S&P Global Commodity Insights shows, making diesel more profitable.
China has some extra refining capacity but is using its oil products domestically to hold prices down.
Europe already faces a natural gas crisis, as we have reported in, “Replacements Scarce for Russian Gas” (29 Mar 2022), “Russia Ends Gas Exports to Poland, Bulgaria. Germany and Italy are Next” (3 May 2022) and other articles.
As a result, some governments have offered to help manufacturers and other large energy users switch from natural gas to diesel to ease the crunch.
Because of that, Europe’s appetite for diesel could grow by another 700,000 barrels a day this winter, JPMorgan analysts have predicted.
TREND FORECAST: Europe’s dependence on Russian fuels is a gaping hole in the West’s sanctions regime. The longer the Ukraine War and the sanctions drag on, the more European consumers’ will to endure them will weaken.
If the fuels-related recession is acute, new political movements will rise up across the continent demanding that sanctions be lifted to restore jobs and lower inflation.
That would be a boon to Russian president Vladimir Putin and Russia’s war, fracturing Western resolve to stand firm, if only symbolically, in opposition to Russia’s invasion.
It also would give other nations and regions an excuse to step away from the sanctions.