• Russian refineries cut diesel fuel processing rates.
• Already tight diesel supplies are getting even tighter.
• Vitol CEO Hardy: Diesel shortage could trigger European rationing

Earlier this week, Vitol’s chief executive Russell Hardy warned that diesel shortages could trigger fuel rationing in Europe. Now that these warnings are multiplying, fuel rationing is no longer an abstract concept.Europe is at risk of a hit to economic growth, Reuters report On Thursday, experts were quoted. Diesel is what freight transport uses to deliver goods to consumers, but it’s also what industrial transport uses as fuel. Already tight diesel supplies will get tighter as Russian refiners cut processing rates after several waves of Western sanctions.

“The government is very aware that there is a clear link between diesel and GDP because almost everything that goes in and out of the plant uses diesel,” the director general of Fuels Europe, which is part of the European Refiners Association, told Reuters this week.

Russell Hardy as Victor famous Earlier this week, “Europe imports about half of its diesel from Russia and about half from the Middle East. The systemic shortage of diesel is there.”

Europe isn’t the only country feeling the pinch from diesel, however.U.S. middle distillate stocks are also falling, Reuters’ John Kemp wrote in his latest column.

Kemp reported that distillate inventories fell on a weekly basis in 52 of the past 79 weeks, falling to 112 million barrels last week, according to EIA data. The total decline over the past 79 weeks was 67 million barrels. Inventory levels last week were the lowest since 2014 and 20% below the pre-pandemic five-year average.

“Diesel is not just a European issue, it’s a global issue. It is,” Gunvor co-founder and chairman Torbjorn Tornqvist said at this week’s FT Commodities Global Summit.

Energy Aspects’ Amrita Sen echoed this sentiment, saying diesel shortages were the worst-affected oil product, noting that Europe was importing nearly 1 million barrels a day of Russian diesel and that fuel inventories were already well below seasonal at the time of Russia’s invasion of Ukraine Average.

The problem seems to be that when Russia invaded Ukraine, global diesel inventories were already tight, and the West responded with sanctions, albeit indirectly against its energy sector. In addition to this, Europe has switched from petrol to diesel, according to Vitol’s Hardy, which further exacerbates the problem.

There are also commodity traders who have shunned Russian diesel due to sanctions, as well as payment headaches and shipping challenges, as many European ports have banned Russian ships from docking.

TotalEnergies is the latest: The company said it will suspend purchases of Russian diesel “as soon as possible, but at the latest by the end of 2022” unless it receives other instructions from European governments.

TotalEnergies said it would move away from Russian diesel and instead turn to other suppliers, notably Saudi Arabia. It will hardly be the only company looking for alternative suppliers. It looks like the search for diesel is in the offing, if not quite yet.

At the same time, alternative suppliers may not be enough to cope with the surge in demand in the short term: Saudi Arabia is already Europe’s second largest diesel supplier after Russia, but Comparison of Compared to its 50% share of the EU diesel import market, the Kingdom has only a 12% share.

Diesel inventories in Asia are also tighter than usual, meaning all large middle distillate markets are facing shortages, according to the Kemp report. That’s pushing up all oil prices, Kemp noted in his column, but it’s just the beginning of a bigger problem.

In addition to freight, diesel is the fuel used to power mining and agricultural equipment and is also used in manufacturing. As fuel prices rise, so will the prices of final products, fueling an inflationary problem that has become a headache in Europe and the United States.

Boosting local diesel production is another option, but according to experts, they will buy crude at a higher price and the final product will become more expensive again. What’s more, the increase in middle distillate production will take time to materialize.

“Diesel production needs to accelerate significantly over the next three months, consumption growth must slow, and the market must avoid major losses in Russian exports,” Kemp wrote. This would be a best-case scenario, if it doesn’t play out, especially in Europe there will be a “serious price spike” that will lead to a drop in demand.

However, inflation in some of the most vulnerable countries could move into double-digit territory before a demand slump hits. If Moscow decides to expand its ruble payment demand for gas to its oil exports, the situation will become more interesting than it is now, especially for Europe.