Diesel prices: can US-Russia deal ease global pressure?

The deal is intended to increase diesel supplies by bringing Russian fuel into US and international markets. More supply could ease shortages that have pushed prices higher. Diesel is vital for transport, farming, logistics, and private motorists, so disruptions affect economies and households.

Russia is expected to supply 300,000 tonnes initially, followed by larger releases in November and December. The plan comes after refining disruptions in Russia and the Middle East, reduced Chinese exports, and restricted fuel movements through the Strait of Hormuz. These problems have contributed to a global diesel deficit.

The immediate shipment is unlikely to change global prices materially. Dr Paul Deane said the amount is small compared with global demand. Larger winter releases could have more effect, but their delivery is uncertain. Russia’s refining capacity has been damaged by Ukrainian strikes, and the deal has faced opposition from Ukraine and European leaders.

Russia is expected to supply 300,000 tonnes of diesel to US and international markets under the agreement. Further, larger releases are planned for November and December. The stated aim is to increase available fuel while global supplies are under pressure from refinery damage, reduced exports, and disrupted trade routes.

The scale is small beside US demand. The US Energy Information Administration estimated that 300,000 tonnes represents less than one day’s supply for the US transport sector alone. Dr Paul Deane compared it with Ireland, which uses roughly 3 million tonnes of diesel each year. He described the Russian shipment as a small drop in the ocean.

The first delivery therefore is not expected to lower global diesel prices materially. A larger flow during winter could matter, but only if Russia can deliver it. Damage to Russian facilities and the two governments’ poor record of following through make that uncertain.

When refineries shut, exports fall, or transport routes are blocked, less diesel reaches buyers. Diesel is needed by hauliers, farmers, logistics companies, and motorists, so a shortage quickly creates pressure across the economy. Prices rise as available fuel becomes harder to obtain.

The article gives several examples. Damage to Middle Eastern refineries and the closure of the Strait of Hormuz cut regional exports sharply. From March to August, the Middle East exported about 800,000 barrels of diesel daily, half last year’s volume. Russia’s refining capacity also fell after Ukrainian strikes, while Russia banned diesel exports during domestic shortages.

These disruptions helped drive prices to record levels. Ireland does not directly import Russian diesel, but global supply changes still affect Irish prices. The national average reached €2.14 per litre in October, 24% above February. The article says restoring larger supplies could move prices, but the Russian volumes remain uncertain.

A diesel crack spread is the difference between the price of crude oil and the price refineries receive for diesel made from it. It shows how much money a refinery earns from converting crude into a useful fuel. The spread matters because refining is a separate stage from producing or buying crude oil.

The article reports that refineries earned about $32 per barrel of diesel in February. By September, that margin had risen to $107. Refining disruptions in Russia and the Middle East reduced production, while China limited exports. These changes left less diesel available worldwide, allowing diesel prices and refinery earnings to rise.

The increase shows that diesel prices are being driven by more than crude oil costs. Even if crude supplies remain available, damaged or insufficient refineries can limit finished fuel. The article links the record margins to a global diesel deficit, although it does not give one single cause for the entire increase.

Russia and the Middle East are important diesel suppliers, so damage to their refineries reduces fuel available to international buyers. Refineries must process crude into usable diesel. When facilities are damaged or shut, crude cannot quickly replace the missing finished product. Export restrictions can reduce supply even further.

The International Energy Agency estimated that Ukraine’s deep drone strikes cut Russia’s refining capacity by around 30% this year. About half of Russia’s 32 major refineries were hit. Russia then banned diesel exports after domestic shortages. In the Middle East, damaged refineries and the Strait of Hormuz closure reduced exports to roughly 800,000 barrels per day from March to August, half last year’s level.

These losses contributed to record global diesel prices and higher refining margins. Europe’s diesel imports from Russia fell from 50% of its market in 2022 to about 1% now. Ireland does not directly import Russian diesel, but it still feels the effect through the global market.

Alternative suppliers and emergency reserves can add diesel when major exporters are disrupted. China is a significant diesel supplier, while strategic reserves can place stored fuel onto the market. Other countries may also redirect cargoes. These measures could improve availability, but they depend on export capacity, timing, and the amount released.

The article says China imposed a months-long export ban before reopening exports, but the supplied text ends before giving details of its likely contribution. The G7 nations vowed to put 100 million barrels of diesel on the market after pressure from the US. Russia’s first planned release is 300,000 tonnes, less than one day of US transport demand.

The evidence does not show that these sources can fully replace lost Russian and Middle Eastern supplies. The article stresses that the immediate Russian volume is small. Larger releases might help during winter, but Russia’s ability to deliver them remains uncertain, and global diesel prices may not respond quickly.

Crude oil does not determine diesel prices by itself because diesel must first be refined, stored, transported, and traded. Each stage affects how much finished fuel reaches buyers. A refinery can earn a large crack spread when diesel sells for much more than the crude used to make it.

The article shows this mechanism clearly. Refiners earned around $32 per barrel of diesel in February, but $107 in September. Damage in Russia and the Middle East reduced refining capacity, while China limited exports. The closure of the Strait of Hormuz also restricted regional fuel movements. These problems reduced available diesel, even though crude oil was not the only constraint.

Inventories and strategic reserves can cushion temporary shortages by releasing stored fuel. Global trade determines whether supplies can move from surplus regions to deficit regions. The article reports a planned G7 release and a US-Russia deal, but says the first Russian shipment is too small to materially change prices. Larger, reliable flows would be needed.