U.S.-Russia Diesel Deal Likely to Have Little Impact on Global Economy

[Financial News] With the United States and Russia having agreed to expand diesel supplies, forecasts suggest the deal will have little impact on global markets. Experts noted that Russia’s volumes are not large enough to meaningfully move prices.
U.S. stocks rose slightly on the 9th (local time) on hopes for increased Russian diesel supplies and easing tensions in the Middle East. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite gained 0.83%, 0.59% and 0.64%, respectively, from the previous session. U.S. President Donald Trump said that he was temporarily suspending sanctions on Russian diesel and that Russia had pledged to supply diesel to the United States and global markets. In remarks the previous day, Trump also said he was having productive discussions with Iran and would not attack the country before the November 3 midterm elections.
Crude oil prices nevertheless rose despite the U.S.-Russia deal, due to production disruptions in the U.S. Gulf of Mexico. West Texas Intermediate (WTI) futures for November delivery and Brent Crude Oil futures for December delivery settled up 0.39% and 0.42%, respectively, from the previous session, at $91.85 and $104.72 per barrel.
The crude oil market was unimpressed by the announcement of expanded diesel supplies. Unlike the crude oil market, dominated by the Middle East, the diesel market is led by countries with refining capacity, such as the United States and Russia. According to the Organization of the Petroleum Exporting Countries (OPEC), the United States ranked first globally last year, exporting an average of 1.26 million barrels of diesel per day, or 15.4% of total global exports. Russia ranked second, with exports of 780,000 barrels, followed by Saudi Arabia, India and South Korea.
Michael Lynch, a senior fellow at the Energy Policy Research Foundation (EPRINC), a U.S. nonprofit research organization, told the Associated Press, “If diesel is supplied from Russia, that basically means Russia’s existing customers won’t receive those volumes and will have to find diesel elsewhere. Prices would essentially stay at current levels.” He added, “The best one could hope for is a very slight local price decline in places like the New York-New Jersey area or Philadelphia.” According to the American Automobile Association (AAA), the average U.S. retail price of diesel was $6.28 per gallon (3.78 L) as of the 10th, nearly twice the $3.67 price a year earlier.
Daniel Sternoff, a senior fellow at Columbia University’s Center on Global Energy Policy, noted that “supplies of refined petroleum products such as diesel are still only just above half of prewar levels.” He said that even if Russia supplied a little more diesel to the global market, it might ease upward pressure on prices somewhat but would not bring them down substantially. Clayton Seigle, a researcher at the U.S. think tank Center for Strategic and International Studies (CSIS), said Russia would likely move to dispose of its summer-grade diesel stocks ahead of winter, adding, “I don’t think the volumes will be sufficient to materially lower prices in the United States or Europe.”

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