Ambassadors from 27 EU countries are meeting in Brussels today to discuss a cap on the import of Russian petroleum products such as diesel and fuel oil. The European Commission is proposing a maximum price of $100 per barrel for premium Russian petroleum products such as diesel and $45 per barrel for “minor” products such as fuel oil.
The sanctions measure due to the war in Ukraine is expected to take effect on February 5th. According to energy expert Ronald de Zoete, we are currently importing much less Russian diesel. ‘Before the war it was about 40 percent, which has dropped to 25 percent. So we’re already doing well.’
“If the price cap is hit, it could be even lower. Then insurance will play a role and so will freight transport, which will then be targeted,’ explains De Zoete. But we’re not there yet. ‘We also see it with oil. The price cap will not be touched and we don’t see any change in this flow.’
According to De Zoete, the price of diesel will not soon reach its ceiling. ‘I did a quick calculation and one of the highest prices is now around 1250 euros a tonne and with the ceiling that has now been agreed, we end up at around 1200 euros a tonne. With that price we can – even if things get difficult – still a little ahead. I think it is important for Europe to be able to buy diesel from Russia for now.’
China and its Covid policy
In addition to Russia, the United States, Saudi Arabia and India are structural suppliers of diesel. “And China has decided to import more oil,” says De Zoete. ‘Further refineries are licensed to produce diesel. A result of the Covid policy having changed. Now they will produce a lot of diesel or they will bet that there will be a shortage of diesel in Europe. So they can sell diesel with large margins because they bought Russian oil at a very low price in recent months. And suppose the Covid approach goes very well, then they will collect that diesel themselves.’
Gasoline prices
De Zoete does not expect such a price cap to have an effect on gas prices in Europe. “Some factories switched from natural gas to diesel in the third quarter of 2022 when gas prices were very high. But then peak prices hovered around 350 euros per megawatt hour. The price of natural gas is now only 15 percent of that peak. So I’m not afraid we’ll go back to diesel. I think we will continue to use natural gas and diesel will go into transportation.”
Source: BNR
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