Russia Poised to Push Diesel Exports in November

Russia is planning to ramp up diesel exports by 40% in November, sources familiar with the situation tell Energy Intelligence.

Exports of diesel are tentatively scheduled to average 750,000 barrels per day, an increase of about 225,000 b/d from October, based on preliminary shipping data.

That would be the highest level since March — the first full month of the war in Ukraine — when Russia exported some 780,000 b/d of diesel.

Just five weeks remain until some 1.2 million b/d of Russian crude is barred from entering Europe.

So Russian oil companies, facing a glut of crude, plan to boost refinery throughput and export more products like diesel and naphtha, while they still can, analysts say.

Europe's diesel stocks are very low for this time of year, so the region should welcome the additional volumes.

European diesel cracks — the gross profit a refinery can make by converting crude into diesel — remain at sky-high levels of around $70/bbl, pointing to robust demand.

Looking further ahead, there is little clarity where alternative supplies will come from once the region bans imports of Russian products from Feb. 5.

Analysts say imports from the US and East of Suez would be insufficient to restore balance to the diesel market.

Throughput Ready to Roar

Russia itself will likely have a glut of diesel next month, now that inventories have risen, refiners have wrapped up maintenance, and European buyers are cutting back on purchases in advance of the Dec. 5 crude embargo.

Even though Russia's refineries underwent annual maintenance in September-October, domestic diesel stocks soared by about 1.5 million bbl to around 21.5 million bbl toward the end of October — the highest level since April.

Russian refinery throughput, meanwhile, is set to grow to some 5.7 million-5.8 million b/d — up about 200,000-300,000 b/d from the July-October period when throughout was largely flat.

Importantly, Russian refiners will focus on producing middle distillates, the one part of the barrel where Russian refineries can still make some decent money.

A critical subsidy known as the "buffer mechanism" currently pays refiners about 28,000 rubles per metric ton ($61.50 per barrel) for domestic sales of diesel. By contrast, the subsidy for gasoline is just $17 per barrel.

Although this essentially means that the domestic market provides a premium, the export netback on diesel is also attractive — even though European buyers are still extracting a discount of about $13-$15/bbl for Russian diesel.

In January-October, Russia exported some 685,000 b/d of diesel, down some 150,000 b/d from average exports in 2021. The lion's share of those exports went to Europe, with a smattering winding up in Asia and Africa.

The country's overall diesel production in the first 10 months of 2022 was 1.7 million b/d.