EconomyTurn off the engine: what will the embargo on...

Turn off the engine: what will the embargo on Russian fuel mean for Europe?


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MOSCOW, February 5 – RIA Novosti, Natalia Dembinskaya. The EU has declared an embargo on Russian diesel. Against a backdrop of famine, particularly in Europe and the United States, the price of fuel will rise sharply. All autumn and winter in the West trying to jump into the last car, they panicked and bought fuel – stockpiling it for future use. But now analysts predict a collapse in the market and do not exclude rationing.

Tough measures

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In December, Brussels banned Russian oil. The noble wick did not last long. The Europeans were caught using a series of intrigues to purchase “sanction-free” raw materials.

But the EU goes even further. Since February, overseas deliveries of diesel and other products from crude oil have not been possible. That’s about one million barrels a day.

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One of the harshest sanctions was designed to “substantially reduce Russia’s revenue from the sale of energy resources to finance the military operation in Ukraine.”

However, economists warned that an imbalance in the global market, a serious deficit and an increase in diesel prices, especially in European countries, are inevitable.

Diversify consumables

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In the spring, the EU faced an acute fuel shortage. Its own diesel is not enough, stocks are running out fast. And domestic demand is huge.

Almost half of the imported middle distillates came from Russia.

The head of Spanish oil refinery Repsol said the deficit was getting worse. Diesel and jet fuel are already declining in some countries. The head of Total predicts higher prices and further declines in industrial production.

More than 50% of Russia’s fuel exports to the EU were diesel. On the way to the embargo, Europe remained the largest buyer. And all of the past months have been feverishly stocking up on fuel.

Thus, according to the International Energy Agency (IEA), diesel exports in Russia in December reached a multi-year high of 1.2 million barrels per day. 720 thousand of them went to the EU.

Increased and alternative supplies. In the week to 29 January, the EU bought 80% more diesel from Saudi Arabia than last year’s average, according to Vortexa. Imports from the United States and United Arab Emirates quadrupled, nine times in total.

structural deficit

However, according to market players, the stability of alternative supplies is a big question mark and it is difficult to compensate for the large drop in volumes.

Europe relies on Chinese fuel, some of which is made from Russian oil. It is not in vain that the export quotas for the first batch of petroleum products for 2023 have been almost doubled by the PRC.

“Without China, the EU is unlikely to find it lost half a million barrels a day due to the embargo,” Energy Aspects analysts said.

European traders expect a structural deficit: stocks are depleted and demand is constantly increasing.

A sharp increase in price

As a result, by all estimates, the European ban will literally blow up the market: the price of fuel will rise, transport costs will rise.

“Difficult logistics will have an impact. As we saw in 2022, market liquidity will decrease and refining profitability will increase,” said Rob Turner, Head of Energy and Resources, PwC UK.

Commodity analytics platform Kpler forecasts tanker demand to increase by 7.2% due to longer routes. Accordingly, the freight price will increase. So, as experts warn, the tanker crisis is not far away.

Diesel fuel rationing

Since diesel is needed to transport the goods, the prices of the goods will increase. Accordingly, the embargo will accelerate inflation, which is already at its peak in the EU.

According to the Spanish newspaper La Vanguardia, the embargo is equivalent to the rejection of 14,000 Olympic diesel pools. The famine will affect 42% of cars, 91% of pickup trucks and 96% of trucks in Europe.

Analysts stress that the EU can no longer count on blending Russian medium distillates, upgrading and desulfurizing non-grade grades, or using diesel-rich Ural oil in the refinery system as before.

According to Wood Mackenzie’s calculations, the embargo will cause fuel stocks in northwest Europe to drop to 210.4 million barrels by the end of winter, the lowest level since 2011. Experts acknowledge the possibility of diesel rationing.

Source: Ria

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I am Emma Sickels, a highly experienced journalist specializing in news and economy. As an author at News Unrolled, I cover the latest trends in the economic sector and provide readers with valuable insights into its complexities. My work has been featured in various media outlets such as The New York Times, USA Today, Bloomberg Businessweek and many more.


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