Standard Chartered: Trump's Russian Diesel Won't Add New Supply

Oil prices fluctuated in Thursday's trading session, with oil benchmarks benefiting from expectations of the United States easing restrictions on Russia's crude. Brent crude for December delivery fell 0.2% to $106 per barrel, while WTI crude for November delivery rose 3.6% to $98 per barrel. However, Standard Chartered analysts anticipate crude prices will stay elevated despite market volatility, with risks still leaning towards the upside.

The political incentive to address high fuel prices is evident as the U.S. midterm elections approach on November 3rd. President Trump recently announced that Russia would supply over 300,000 tonnes of diesel to the U.S. and international markets, followed by 500,000 tons in November; another 1 million tons later, and 3 million tons contingent upon Russia's refinery conditions.

This marks a surprising shift in U.S. energy diplomacy, with Russia, the world's largest diesel exporter, now needing more fuel from one of the world's most sanctioned energy producers. However, analysts doubt Russia's capacity to increase its diesel output in the near term, citing Ukrainian attacks that have crippled Russia's refining capacity, as well as domestic fuel shortages and export restrictions.

A critical factor for Russia is striking a balance between additional export commitments and meeting domestic demands. Sanctions on specialized refinery equipment further complicate matters. The announced volumes cannot be considered incremental global supply, as shipping and insurance costs have risen to over one-third of the commodity's value, making it costly to deliver supplies to consumers.

Political agreements can boost expectations of availability but cannot restore damaged infrastructure or efficient trade routes, nor lower delivered costs pre-disruption. The vulnerability of regional energy infrastructure, highlighted by Houthi missile attacks on Saudi airports, underscores the potential risks to supply recovery.

Elevated gas prices in Europe, driven by increased heating demand and reduced storage, are expected to persist, with TTF gas prices jumping 10.2% over the past week.