President Donald Trump’s diesel deal with Russia is unlikely to significantly reduce fuel prices for truckers and farmers because the amount Moscow is expected to export is very small compared to U.S. and global demand.
Since diesel is used to transport a wide range of goods as well as harvest crops, its increasing cost tends to ripple through the entire economy, driving up prices. As the US midterm elections approach in November, Trump faces pressure to tackle fuel prices because of their impact on inflation.
Russia will immediately supply 300,000 tons to the world market, Trump said Friday in his Truth Social article. One ton of diesel is about 7.45 barrels, according to S&P Global Platts.
The Kremlin therefore agreed to initially export around 2.24 million barrels, or 74,500 barrels per day if spread over an entire month.
That equates to about 2% of total U.S. demand, which stood at 3.65 million bpd in the week ended Oct. 2, according to the Energy Information Administration. This represents well less than 1% of the more than 28 million bpd consumed worldwide, according to the International Energy Agency.
“It doesn’t even touch the sides — it’s very, very small,” Neil Atkinson, former head of the IEA’s oil industry and markets division, told CNBC’s “Squawk Box Europe” on Monday.
Ten days of total demand in the United States
Russia is scheduled to ship another 500,000 tons, or 3.73 million barrels, in November, followed immediately by 1 million tons, or 7.45 million barrels. Moscow will then release 3 million tons or 22.35 million barrels at a later date depending on the condition of the country’s refineries, Trump said.
Goldman Sachs estimated Monday that Russian diesel, scheduled to go on sale in October and November, would only lower wholesale diesel prices by $1 to $2 per barrel in the U.S. Gulf Coast and Europe.
In total, Trump’s diesel deal with Russia would supply the market with 4.8 million tons, or 35.76 million barrels, if the deal is executed as announced by the president. This equates to about 10 days of U.S. domestic demand, or just over a day of global demand.
But the United States is a net exporter of diesel and therefore does not need the Russian supply, said Andy Lipow, president of Lipow Oil Associates. The European Union has banned imports of Russian crude oil and refined products. Russian diesel would help ease competition for U.S. barrels in countries like Brazil and Turkey, Kpler analysts said Monday.
“Volumes are really going to have very little effect in the medium to long term,” Daniel Hynes, senior commodities strategist at ANZ, told CNBC’s “Squawk Box Asia” on Monday.
Political pressure
Diesel futures didn’t move much Monday in response to the deal, closing down about 1 cent, and are trading higher Tuesday. It’s a sign that the market views the deal as nothing more than a verbal intervention by Trump to show consumers he’s doing something to tackle fuel prices, Lipow said.
Trump’s deal with Russia comes as he is under pressure to cut fuel prices ahead of the US midterm elections in less than a month. U.S. diesel prices averaged $6.28 per gallon Tuesday, up 72% from the same period last year, according to AAA.
Prices soared as Ukraine pounded Russian refineries. Iran and its Houthi allies have also struck refineries in the Middle East and disrupted exports through the Strait of Hormuz, reducing fuel supplies.
It’s unclear where Russian diesel will come from in Trump’s deal given that Moscow has halted exports due to Ukraine’s attacks on its refineries, pipelines and storage facilities, Atkinson said.
The Kremlin announced on Saturday that it was partially lifting its export ban to deliver the volumes planned under the agreement with the United States, according to the official Tass news agency.
Limited options, more disruption
Trump has limited options for tackling diesel prices. The president flirted with a U.S. ban on diesel exports, but abandoned the idea because it could raise gasoline prices. According to AAA, the average cost of regular gasoline is $4.34 per gallon, up from $3.08 a year ago. Trump issued an executive order last week allowing truckers to use tax-exempt off-road diesel on highways, but the tax obligation is deferred, not eliminated.
Refining capacity needs to be brought back into the market for the situation to improve, Hynes said. But there are still constraints in the Middle East and the risk of further attacks on Russian refineries is high, he said.
Ukrainian President Volodymyr Zelensky said Monday that Russia has already violated the energy ceasefire declared by Trump on Sunday. Zelensky warned that kyiv would react if Moscow did not respect the ceasefire.
Goldman estimated that Russian refinery outages are 3 million bpd more than the same period last year, “making it difficult to gradually increase diesel production.”
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