As Europe prepares to replace Russian diesel, market participants increasingly turn to larger cargoes for imports
London 24 October, 2022
Global energy and commodity price reporting agency Argus has launched price assessments for diesel delivered in large 90,000-100,000t cargoes to Europe, in response to changing trade patterns caused by forthcoming sanctions on Russian diesel imports.
Europe does not have sufficient refining capacity to meet its diesel needs and typically imports 1mn b/d of supplies from outside the region, 60% of which are currently supplied by Russia. Many companies have already voluntarily stopped purchasing Russian diesel on a spot basis, but considerable volumes are still moving to Europe on long-term contracts. A legal ban on Russian oil product imports comes into effect from February, and market participants are already identifying and seeking to secure alternative sources of supply.
Replacement diesel is likely to come from the Middle East, Asia-Pacific and the US. To make the long journey from Asia-Pacific to Europe economic, fuel will typically be shipped in large tankers of 90,000-100,000t capacity, which contrasts with the usual 25,000-30,000t cargoes of Russian diesel. Argus has launched new prices for these larger Long Range 2 (LR2) cargoes delivered to the Mediterranean and to northwest Europe as a result of this shift.
Earlier this year, Argus also launched price assessments for 30,000-60,000t cargoes, which are the size of most US and cross-Europe shipments.
The Argus Open Markets (AOM) platform enables registered market participants to post bids and offers for long range diesel cargoes delivered into Europe, as well as to initiate trades, providing full and real-time transparency.
Argus has also started pricing diesel and gasoline exported from Bohai Bay in China’s northeast refining hub. China has excess refining capacity for its domestic requirements and its government may opt to take advantage of the new demand for oil products that will come from Europe.
“As markets adapt to a world without Russian oil, new trade patterns are emerging. Argus is pleased to be the first price reporting agency to launch assessments that will illuminate the changing structure, Argus Media chairman and chief executive Adrian Binks said. “The new LR2 prices provide accurate value for these long-range cargoes, and add transparency that will help companies make informed decisions about diesel purchases.”