Global markets face a squeeze on diesel, leading traders have warned, with Europe most at risk of a “systemic” shortage that could lead to fuel rationing.
The heads of three of the world’s largest commodity traders estimated as much as 3mn barrels of oil and its products a day could be lost from Russia as a result of sanctions, following the country’s invasion of Ukraine. The corporate leaders were speaking at the FT Commodities Global Summit in Lausanne, Switzerland on Tuesday.
“The thing that everybody’s concerned about will be diesel supplies. Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East, ”said Russell Hardy, chief of Switzerland-based oil trader Vitol. “That systemic shortfall of diesel is there.”
Those Russian imports account for roughly 15 per cent of Europe’s diesel consumption, while crude oil including supplies from Russia is also processed by refineries on the continent.
Hardy said the shift to more diesel consumption over petrol in Europe had helped to create shortages of fuel. He added that refineries could boost their diesel output in response to higher prices at the expense of other oil-derived products to shore up supply, but acknowledged that rationing was a possibility.
Torbjorn Tornqvist, co-founder and chair of the Geneva-headquartered Gunvor Group, added: “Diesel is not just a European problem; this is a global problem. It really is. ”
Amrita Sen, chief oil analyst at Energy Aspects, said that “diesel is by far the worst affected” of oil products because Europe imports close to 1mn barrels a day of Russian diesel and the world entered the conflict with near record low stocks of oil .
Meanwhile, Jeremy Weir, chief executive of Singapore-based Trafigura, said that 2-2.5mn barrels of Russian oil production would go missing from the global market, split between crude and refined products. “The diesel market is extremely tight. It’s going to get tighter, ”he said.
Tornqvist also said European gas markets were no longer functioning properly as traders faced huge demands from banks for cash to cover hedging positions.
“I think it’s broken. It really is, ”he said. “I never thought that somebody could say ‘ah, gas has fallen below 100 per megawatt hours is really cheap’.”
Last week, Europe’s largest energy traders called on governments and central banks to provide emergency liquidity support to keep gas and power markets functioning as sharp price moves triggered by the Ukraine crisis have strained deals in commodities.
Gas futures linked to TTF, Europe’s wholesale gas price, have whipsawed from about € 80 a megawatt hour ahead of Russia’s invasion of Ukraine to more than € 300 earlier this month, before sliding below € 100 again this week. Two years ago, European gas prices were below € 20 a megawatt hour.
Twice weekly newsletter
Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.
Commodity traders face soaring margin requirements – the percentage of a security’s price that banks demand traders hold in cash. Hardy said participation in the spot market for gas had dwindled because the cost of trading had risen so high.
To move a cargo equivalent to 1 megawatt hour of liquefied natural gas priced at € 97, traders must provide € 80 in cash, straining their capital requirements, Hardy said.
Tornqvist said European utilities would struggle to fill gas storage for next winter given the “paralyzed” state of the spot market for gas, unless policymakers stepped in to provide guarantees to protect buyers against price swings.