Why Russia’s ban on diesel exports will last weeks not months

(Bloomberg) -- Russia’s ban on diesel shipments overseas probably won’t last for long as a combination of peaking demand from agriculture and a lack of space to stash the fuel create an impetus to resume exports.

Thursday’s decision to cease deliveries by one of the world’s major diesel suppliers has pushed up prices in Europe. Still, the rally in its premium to Brent crude oil — by a couple of dollars a barrel — didn’t take the fuel back to levels seen as recently as last week.

Russia hasn’t spelt out how long the ban will be in place, saying only that it imposed the measure to stabilize domestic supply.

Analysts at both Citigroup Inc. and JPMorgan Chase & Co. said that once the heaviest demand from agriculture passes — allowing Russia to harvest what should be a bumper crop — pressures to keep diesel at home should also abate. Likewise, the vast scale of the nation’s exports mean an outright ban would quickly fill up domestic storage depots.

The ban will last only a “couple of weeks, until harvest concludes in October,” JPMorgan analysts including Natasha Kaneva and Prateek Kedia said in a note. Fuel shortages in Russia aren’t extensive given that supplies in most regions appear to be relatively balanced, they said.

The loss of Russian diesel coincides with a tight global market for the fuel, with oil refiners struggling to replenish depleted stockpiles. The loss of certain types of diesel-rich crude oils from OPEC+ producers has tightened the market. Hot weather also curbed production of fuels like diesel this summer, exacerbating the crunch. 

READ: The World Is Struggling to Make Enough Diesel

According to Citigroup, domestic Russian diesel demand for the harvest is set to peak in the next three to five weeks, with the ban lasting slightly longer than that, analysts including Francesco Martoccia and Ed Morse said in a note. Russia is the world’s biggest wheat exporter. 

The bank also pointed out that if there isn’t enough storage space in Russia then refineries may find they have to curb processing rates — a fact that could end up curbing production of crude oil.

RBC Capital Markets LLC said the timing of the ban — ahead of the northern hemisphere winter — could signal that the decision is politically motivated.

The move may “reduce some of the complacency that had crept into the market about a Russian disruption threat,” RBC analysts including Helima Croft and Christopher Louney said in a note.

The ban also applies to exports of gasoline, which are lower than diesel. Gasoline shipments could be limited for longer due to tighter balances for that fuel in Russia, said FGE, an industry consultant. 

--With assistance from Jack Wittels, Alex Longley and Áine Quinn.

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