The EU’s decision to ban imports of oil derived from Russian crude — refined in countries such as Turkey and India — will have a significant impact on Europe’s sourcing of diesel that has so far been underestimated, TotalEnergies CEO Patrick Pouyanne said July 24.

Outlining corporate results, Pouyanne highlighted the ban as an additional factor impacting diesel markets on top of refiners’ increasing reliance on light shale oil and natural gas liquids, a tendency already underway and a reflection of the existing EU ban on Russia’s medium, sour Urals crude.

“There is a diesel driver in the market,” Pouyanne said, noting rising refining margins, which had exceeded $50/mt at the start of the third quarter, according to the company. “Stronger diesel prices become a persistent feature on the global market. It’s linked in particular to all that’s happening around Russian flows,” he said.

The EU’s latest ban on Russian-derived products “is impacting again — increasing the scarcity of sources of diesel for Europe,” said Pouyanne, whose company is Europe’s largest refiner. “People have underestimated this news from the EU.”

“Europe fundamentally has a deficit of diesel so we are obliged to import — diesel is coming now from the Middle East or from US refineries further away [compared with Russia], so it has increased the cost of all that,” he said.

He highlighted an increasing industry reliance on lighter crudes such as US shale oil, saying “the mix of crude oil in the basket is lighter and lighter because of shale oil. That means it’s more difficult, more costly to produce diesel, and you have also more natural gas liquids — NGLs plus light oil is not good for making diesel — that is pushing prices up. It is more difficult, more costly to produce diesel.”

Beside the traditional summer demand uptick, “there’s something for me more structural there,” he added.

Wide-ranging ban
The EU ban is due to take effect after a six-month interval, with some details still awaited. ICE low sulfur gasoil futures — the European distillates benchmark — jumped following the announcement July 18, with the August-September time spread widening to $27.75/mt from $17.25/mt and the outright price rising by about $42.50/mt by 1200 GMT.

The EU regulation accompanying the announcement appears broad in scope. It includes an exemption for oil products from countries that are net exporters of crude, but with a proviso that products will be barred if “a competent authority has reasonable grounds to believe that they have been obtained from Russian crude oil.”

Other countries sanctioning Russia have yet to follow the EU’s lead on the ban of oil products derived from Russian crude.
Source: Platts