Author: Ahmad Ghaddar, Shariq Khan, Trixie Yap and Enes Tunagur
LONDON (Reuters) - Global diesel prices and refining profits surged after the latest round of U.S. sanctions on Russian oil trade, on expectations the measures will tighten supplies, analysts and London Stock Exchange data showed.
On January 10, the United States imposed its toughest sanctions yet on Russian producers and oil tankers to limit revenue earned by the world's second-largest oil exporter from the war in Ukraine.
Many of the newly targeted ships are part of a so-called shadow fleet designed to circumvent Western restrictions and have been used to deliver oil to India and China. Refiners in these countries benefit from cheap Russian imports, which were banned in Europe after Moscow invaded Ukraine.
Energy Aspects analyst Natalia Losada said: "Diesel (margins) have increased following the sanctions news and we expect significant disruption to Russian diesel exports." She added that from At least 150,000 barrels per day of Russian diesel exports from the Gazprom Neft and Surgutneftegas refineries are at risk.
The premium for the first-month European diesel benchmark contract over six months out surged to $50.25 a ton on Thursday, a 10-month high, London Stock Exchange data showed.
The diesel market is already in backwardation, a term used to describe a market structure in which near-term contracts trade at a premium to contracts for later delivery. This usually indicates tight supply.
Diesel refining profits hit $20 a barrel on Thursday, a five-and-a-half-month high.
Cold weather in the Northern Hemisphere has supported the diesel market.
Asian diesel refining profits jumped 8% to over $17 a barrel on Monday, the biggest gain since September, before falling back to around $16.50 a barrel on Thursday.
U.S. diesel futures soared more than 5% on January 10, their biggest one-day gain since October, and hit a six-month high of $111 a barrel on Thursday. Front-month diesel is trading at a premium of more than $10 to the six-month contract, the largest premium in nearly a year.
Traders and refiners are factoring rising crude costs into fuel prices and refining runs, two Singapore trade sources said, adding that lower Russian diesel flows were unlikely to have a significant immediate impact on Asian markets.
A third source said despite higher diesel margins, complex refining margins in Asia have also weakened as crude oil prices rise much faster than refined product prices.
Dubai spot prices rose 8.5% from Friday, while Singapore's February diesel swaps rose only 5.5% over the same period.
Refining profits at Asia's bellwether Singapore Complex hovered at a five-month low of 17 cents a barrel on Thursday, London Stock Exchange pricing data showed.
Europe was the biggest buyer of Russian diesel ahead of Western sanctions in 2022, and is now turning to supplies from India, the Middle East and the United States to fill the gap.
Sparta Commodities analyst James Noel-Beswick said that while most of the 183 sanctioned vessels are used to transport crude oil and fuel oil rather than diesel, there are concerns that the sanctions may affect refinery operations in India and China, thereby reducing their diesel production and exports to Europe. explain.
He added that Turkey and Brazil, Russia's top diesel buyers, will need to find alternative sellers such as the United States and Middle Eastern countries in case there is a serious disruption in Russian supplies, increasing competition for European buyers.
Other analysts said the market would eventually adjust to the new sanctions.
FGE Energy analyst Eugene Lindell said: “We don’t actually expect to see any significant changes in Russian product flows because the same products can be shipped to the same countries simply using unapproved tankers. destination."
(Editing by Alex Lawler, Simon Weber and Elaine Hardcastle)