Brazil importers await Russian diesel flows to resume

Diesel importers in Brazil are concerned with the escalation of the Russia-Ukraine conflict, leading many to evaluate alternative sources of supply.

More than 10 Russian refineries have been targeted by Ukrainian drone attacks since the beginning of August. The combined crude processing capacity of the affected units, some of them hit more than once in recent weeks, is of around 2.3mn b/d. The impact of the offensive and the time required to repair damage are uncertain.

Fuel shipments by Russian rail have recently declined as a sign of a slower pace of local production. Reports of supply problems in some regions have coincided with peak Russian summer demand for motor fuels.

Major Brazilian distributors expected the second half of September to be a milestone, marking a "return to normality" of Russian fuel flows. The conclusion of scheduled maintenance at some refineries and a cooling in seasonal demand from Turkey were expected to put Russian cargoes in a leading role in Brazilian lineups.

With the recent attacks, however, operators have seen Russian diesel offers virtually disappear from the market. Offers for available volumes have edged closer to the levels offered by refiners from other sources. The discount for Russian product in relation to US Gulf product is now far away from the 5-6¢/USG benchmark, an indicator of the attractiveness of Russian diesel imports.

Argus indicators for cargoes of Brazil-bound 10ppm (S10) diesel from Russia for delivery to the north-northeast and south-southeast regions ended last week at 7¢/USG and 6.5¢/USG, respectively, below the November Nymex. In the same period, indicators for cargoes from other origins closed at a 7¢/USG discount to the reference contract for the north-northeast and a 4¢/USG discount for the south-southeast.

Russian recall

Unscheduled maintenance at domestic refineries has led some Russian sellers to announce that previously agreed-upon volumes may not be available.

Participants reported to Argus at least one cancellation of an agreement involving a major distributor. Reports of negotiations to review other concluded deals have drawn attention to October flows.

Brazil imported 337,625 b/d of diesel in January-July, trade ministry data show. Of this total, almost 61pc came from Russia. There were an average of 197,530 b/d of Russian diesel landings over the period.

The pace slowed in August, with imports of Russian fuel falling to 139,810 b/d - equivalent to 51pc of the total volume landed in the month. Preliminary data point to an even greater slowdown to 82,782 b/d in September and 62,475 b/d in October, according to energy analytics firm Vortexa.

Recent attacks by Ukraine follow renewed threats of "secondary sanctions" by US president Donald Trump against Russia and its trading partners. Adding to the list of risk factors, a possible, partial diesel export ban for non-producers until the end of 2025 has called Brazilian importers' attention.

Importers seek alternatives

Russia will take longer than expected to resume its production levels, importers said. The delay means it will take longer for Brazil-bound cargoes to return to price differentials that market operators have become accustomed to in recent years.

The delay has prompted large and small distributors to adjust their acquisition strategies, which has resulted in a renewed focus on US Gulf, Indian, and Persian Gulf routes.

Vortexa expects 279,300 b/d of diesel imports to arrive in Brazilian ports in October. Of this total, just over 69,300 b/d will come from the US, 65,940 b/d from India and just under 70,350 b/d will be split between Oman and the UAE.

Among flows from India, cargoes from Nayara Energy, the Vadinar refinery's owner, have gained momentum. The refinery is subject to EU sanctions because of alleged links with the Russian state-owned company Rosneft.

Author name: Marcos Mortari, Argus Brazil Motorfuels, Oil Products