The Brazilian ultra low sulfur diesel import market has turned to the US Gulf Coast in search of product, as Russian supply has been disrupted by Ukrainian drone attacks.

Russian ULSD availability to Brazil has vanished, with virtually no new offers as of Sept. 24, according to market participants. This coincides with Russia’s domestic fuel shortages due to sustained attacks on its refining infrastructure.

“Russian shipments are quite tight. There have been cancellations of shipments. Their domestic prices have risen. They are struggling to meet market demand and are looking to reduce exports,” said an importer that deals primarily with Russian material.

The supply crunch has turned pricing dynamics upside-down in the Brazilian import market. Paranagua offers for Russian products, when available, are now at a premium to USGC-origin cargoes, for example, 2.5 cents/gal more expensive. “Russian products are more expensive than those from the Gulf, and there is no supply. Currently, unsanctioned Russian shipments are arriving at Nov-1 [ULSD November contracts minus 1 cent/gal] in Paranagua,” said a major distributor in Brazil.

Since the start of the Russia-Ukraine war and up until now, Russian barrels have been typically offered at more competitive levels to Brazil.

Platts, part of S&P Global Commodity Insights, assessed the US- versus all-origin ULSD spread on a DAP cargo basis across Brazilian ports at 0 cents/gal over Sept. 22-24, positioning the USGC as the most competitive origin.

In South Brazil, the DAP spread assessment has been tracking the lowest price between Santos and Paranagua since its launch on Sept. 1, 2023, and this was the first time it touched zero. Conversely, since hitting peak competitiveness in April 2024 at 19.45 cents/gal below the USGC, the Russia discount has narrowed significantly.

According to market participants, Russian barrels become more attractive to buyers at a 5-cent/gal discount compared with US-origin imports.

“Recently, the spread between Russian and USGC material remained at a 2-cent/gal difference, with the US being more expensive. However, there are currently no Russian offers in the market. It has been difficult to determine how much more expensive Russian material is,” an importer operating in North and Northeast Brazil stated.

Russian supply broad disruption
The Russian supply shortage comes from persistent damage to its refining sector. Since August, Ukrainian drone attacks have hit at least 17 refineries, pipeline pumping stations, and major Baltic export terminals.

Based on estimates from Commodity Insights analysts, Russia accounts for the lion’s share of refining in the Commonwealth Independent States area, accounting for some 80% of capacity.

These disruptions coincide with peak seasonal demand in the country, during the summer driving season and with rising diesel use ahead of the autumn harvest. This has created domestic supply pressures in Russia, forcing it to prioritize domestic needs over exports.

Market sources indicate that Russia might further reduce exports to meet domestic demand, removing a significant source from the global ULSD market.

The Brazilian market disruption is part of a broader regional impact from Russian refining outages. Central Asian countries are also seeking alternatives, with Kazakhstan, Uzbekistan and Kyrgyzstan exploring supply options from Iran, Azerbaijan and Turkmenistan.

In Brazil, aside from the USGC, there have been more participants eyeing opportunities in the Arabian Gulf, for example, while in the past, mostly Petrobras sought cargoes in that region.

“I noticed one diesel shipment departing from Amsterdam, which is not a conventional source, and there is a lot of speculation about origins in India that are not under embargo and could start arriving in Brazil more frequently,” one relevant Brazilian distributor said.
Source: Platts