International sanctions on Russia's diesel shipments have been in place for over two weeks and seem to be having the desired effect. The Group of Seven and the European Union's measures were designed to cut Moscow's revenue but maintain the flow of diesel barrels. The export price of Russian diesel has dropped relative to non-Russian supplies, with the discount reaching $35 a barrel last week, but exports have largely remained consistent. In the first half of February, the average daily shipment of diesel-type fuel from Russia's ports was over 1 million barrels, which is a slight drop from January but still above the 2022 daily average.
The broader diesel market is stable, with the price of diesel futures relative to crude oil reaching its lowest in almost a year and the forward curve of the fuel indicating no obvious panic. However, the final sale price of Russian fuel and where the money ends up is unclear. Russian oil prices are often given on a Free-on-Board basis, but buyers in countries such as Turkey, Morocco, and Tunisia may be paying significantly more than the FOB price. There have been fewer deals conducted openly through brokers, reducing price transparency for the wider market.
It is also unclear if Russian exports will continue as smoothly as they have so far. The International Energy Agency has said that it expects Russia to struggle to place diesel and will have to cut refining runs. Despite a month-on-month drop of about 150,000 barrels a day, the rate of diesel-type fuel exports from Russia in the first half of February was only surpassed nine times in more than seven years. With higher Russian refinery maintenance and lower crude runs expected in coming months, the country's diesel exports are expected to further decline.
In conclusion, the international sanctions on Russia's diesel shipments seem to be having the desired effect, with the export price of Russian diesel dropping relative to non-Russian supplies and exports largely holding up. The broader diesel market is stable, but the final sale price of Russian fuel and its ultimate destination remain unclear. The future of Russian exports is uncertain, with the International Energy Agency expecting Russia to struggle to place diesel and cut refining runs, and a drop in exports expected in coming months.
