Russia lifts diesel-export ban that battered global markets

Russia allowed a return to seaborne exports of diesel just weeks after imposing a ban that roiled global markets, taking other steps instead to keep sufficient fuel supplies at home.

Shipments can resume provided that the fuel is delivered to the nation's ports by pipeline, according to a statement on the government's Telegram account. Such flows to Russia's western ports account for the bulk of exported volumes.

The move will be a relief to importers after Russia, the single largest seaborne exporter of diesel-type fuels, slapped a near-total ban on deliveries Sept. 21. That followed a surge in domestic fuel costs that stoked inflation — a potential political problem for the Kremlin ahead of March presidential elections.

The ban drove up European prices in an already tight market. Refiners around the world are struggling to produce enough of the fuel after Russia and Saudi Arabia cut supply of crudes rich in diesel, causing inventories to dwindle.

The updated regulations are set to free up about 90% of pre-ban seaborne volumes for export, or some 630,000 barrels a day, according to estimates from Viktor Katona, head crude analyst at market intelligence firm Kpler.

Yet the new rules stipulate that producers must keep at least 50% of their diesel output at home. Taking major exporter Surgutneftegas PJSC as an example, the company would need to hold on to around 55,000 barrels of the daily volumes it used to sell abroad, Katona said.

Transneft PJSC, Russia's crude and product pipeline operator, will begin loadings of diesel for seaborne exports in line with new regulations after receiving the necessary documentation from the government, the energy ministry and upon the readiness of oil producers, said Igor Dyomin, spokesman at Russia's crude and product pipeline operator.

Usually, in order to load diesel to foreign markets, Transneft requires an export plan approved by Russia's energy ministry and shipment orders from oil producers. The operator was loading minor diesel cargoes that were exempted from the ban as they were cleared by customs.

Muted Reaction

Key metrics for diesel traders extended declines. The fuel's premium over crude oil fell as low as about $23.50 a barrel before recovering, according to ICE Futures Europe data.

Its so-called prompt timespread slumped by $3.75 to reach $17.75 a ton, ICE's data show. The spread, currently the gap between November and October futures, provides clues on how urgently traders want supply, and how tight they perceive the market to be. The lifting of the ban had been signposted earlier this week, causing the market to weaken. Some observers had already expressed skepticism about how long the restriction would be in maintained for.

Exporters that don't produce their own diesel but ship volumes purchased on the domestic market will now have to pay a prohibitively high export duty, according to the statement. That's set at 50,000 rubles (almost $500) a ton, close to the current price of Russian inter-seasonal diesel on the nation's SPIMEX commodity exchange.

The government is also restoring in full its subsidies to refiners to ensure domestic fuel demand is met and refineries get compensation for the difference between prices at home and abroad.

It had halved the multibillion-ruble payouts last month to rein in budgetary spending burdened by the rising cost of the war in Ukraine. But the move was criticized by President Vladimir Putin, who said the cut aggravated the situation on the domestic fuel market.

Source: Bloomberg