Standard Chartered: Trump’s Russian Diesel Won’t Add New Supply
Oil prices were mixed in Thursday’s trading session, with prospects of the United States easing restrictions on Russia’s crude helping ease the international benchmark while attacks on vessels in the Middle East provided support. Brent crude for December delivery was down 0.2% to trade at $106 per barrel at 2.49 pm ET, while WTI crude for November delivery jumped 3.6% to trade at $98 per barrel. However, commodity analysts at Standard Chartered have predicted that crude prices will remain elevated despite heightened volatility, with risks still skewed to the upside. With the U.S. midterm elections approaching on 3 November, the political incentive to demonstrate action on elevated fuel prices is clear. Last week, President Trump announced that Russia would immediately supply more than 300,000 tonnes of diesel to the U.S. and international markets, followed by 500,000 tons in November; a further 1 million tons thereafter and yet another 3 million tons subject to the condition of Russian refineries.
As StanChart has noted, this marks a striking reversal in US energy diplomacy with the world’s largest diesel exporter now seeking additional fuel from one of the world’s most heavily sanctioned energy producers. However, the energy experts are highly skeptical of Russia’s ability to increase its diesel output in the near-term. After all, Ukrainian attacks have significantly degraded Russia’s refining capacity, while domestic fuel shortages and export restrictions have already constrained its ability to supply international markets. Moscow has repeatedly breached the energy ceasefire announced by Trump, with strikes on Ukrainian energy facilities continuing. StanChart says that a ceasefire would be critical to Russia’s ability to restore refining capacity, and that even a sustained cessation of attacks would not immediately restore damaged processing units or normal refinery utilization.
Meanwhile, Russia must now balance additional export commitments against its domestic requirements. The situation is not helped by the fact that sanctions on specialized refinery equipment also make it harder to restore the facilities. But here’s the main kicker: the announced volumes cannot automatically be treated as incremental global supply because barrels redirected to the U.S. or other buyers would simply become barrels unavailable to existing customers.
Recently, OPEC ministers warned that shipping and insurance costs had risen to more than one-third of the commodity’s value. Whereas this figure is not representative of every trade route, StanChart notes that it highlights the extraordinary costs associated with disrupted energy flows. Even where crude and product exports recover, longer voyages, additional handling, elevated insurance premiums and reliance on alternative routes continue to raise the cost of delivering supplies to consumers.
Recovering volumes, then, don’t necessarily mean normalizing market conditions. Political agreements may improve expectations of availability, but they cannot immediately restore damaged infrastructure, efficient trade routes or the lower delivered costs that characterized the market before the disruption.
The vulnerability of regional energy infrastructure was highlighted once again over the weekend, even as attention turned to the Riyadh energy forum. Yemen’s Iran-aligned Houthis claimed responsibility for a missile attack on King Khalid International Airport about a week ago, followed by further strikes that disrupted operations at Dammam airport as well as a missile that was intercepted over Riyadh on 12th October.
According to Stanchart, the escalation highlights the increasingly distinct but overlapping fronts of the Middle East conflict: the broader U.S.-Iran confrontation and the renewed Saudi-Houthi war. Crucially, the latter presents a direct threat to Saudi infrastructure, independent of developments in the Gulf. The attacks reinforce the vulnerability of the infrastructure and logistics networks on which the region’s supply recovery depends. Recovering export volumes, therefore, offer little reassurance if the routes enabling that recovery remain exposed to further escalation.
On the natural gas front, Stanchart has projected that Europe’s gas prices will remain elevated as the continent’s early phase of cooler weather increases the tug-of-war between heating demand and storage injections. Europe’s first cold spell of the season has tightened the regional fundamental balance. To wit, CNWE’s LDC demand increased by 26% w/w–the largest absolute and relative shift in the balance of the week. CNWE storage injections simultaneously rose by 8%, meaning that immediate heating demand and the continuing need to rebuild inventories tightened the system at the same time.
Meanwhile, higher Norwegian Continental Shelf (NCS) flows and LNG sendout into CNWE provided some relief, but did not fully offset the increase in demand. TTF gas prices jumped 10.2% over the past week to trade at €85.83 per MWh.
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