London June 1 2022: A steep discount in Russian diesel prices compared with fuel produced by other countries has spread to the European barge market in two-tier trading that is likely to continue as the EU works to phase out Russian refined product imports.
Importing Russian crude oil and refined products does not currently breach Western sanctions but a number of large firms including Shell, BP and TotalEnergies have already stopped buying from Moscow, while others started cutting purchases from May 15.
The discount for Russian crude and refined products is now spreading to diesel barges used to transfer product arriving into northwest European storage to other terminals within the same port or other ports and countries in the region.
From Europe’s main oil importing Amsterdam-Rotterdam-Antwerp (ARA) hub, barges can head down the Rhine river to Switzerland, France and Germany, making it difficult to determine where fuel originated from.
Energy firms and traders that are voluntarily shunning Russian exports are now also starting to specify non-Russian origin when looking to purchase diesel barges.
Discounts for non-Russian diesel barges compared to those of open origin are at around $30 a tonne in the ARA hub, although they have fluctuated widely, two traders said on Wednesday.
On Tuesday, TotalEnergies looked to buy a non-Russian diesel barge at a $35/tonne premium above the June Ice gasoil contract, while Unipec was looking to sell a diesel barge of open origin at as low as $16/tonne above the June contract.
The similar Russian diesel discount that emerged in the European cargo market last month pushed price reporting agency S&P Global Platts to no longer reflect Russian origin in its open origin European diesel and gasoil cargo assessments effective Wednesday.
The agency said it is now seeking more feedback on ARA barges including how the origin of the product would be demonstrated.
Europe relies heavily on Russian diesel imports, which accounted for over half of total seaborne imports in May, according to data from analytics firm Vortexa.
As fuel prices soar around Europe, inland buyers are working with suppliers’ legal departments in order to be able to purchase the cheaper diesel barges, an inland trader said, amid a web of sanctions clauses related to payment systems and transportation.
Meanwhile, the backwardated market structure, whereby the front month delivery contract is more expensive than future months, is failing to incentivise stockpiling ahead of a European Union ban on Russian oil imports.
EU leaders agreed in principle on Monday to cut 90% of oil imports from Russia by the end of this year in response to its invasion of Ukraine, which Moscow calls a “special military operation”.
Once fully adopted, sanctions on crude will be phased in over six months and on refined products over eight months.
The Ice diesel six-month spread is currently around $30 a barrel.
“The question is how the EU will compensate, we have eight months to figure it out,” one European diesel trader said.
