President Donald Trump’s diesel deal with Russia is unlikely to significantly lower fuel prices for truckers and farmers because the amount Russia is expected to export is very small compared to U.S. and global demand.
Because diesel is used not only to harvest crops but also to transport a wide range of goods, rising costs tend to ripple through the economy and drive up prices. As the US midterm elections approach in November, Mr Trump faces pressure to address fuel prices due to their impact on inflation.
President Trump said in a post on Truth Social on Friday that Russia would immediately supply 300,000 tons to the global market. According to S&P Global Platts, one ton of diesel is equivalent to about 7.45 barrels.
So the Kremlin agreed to export about 2.24 million barrels initially, or 74,500 barrels per day if spread out over the course of a month.
That’s about 2% of total U.S. demand, which was 3.65 million barrels per day in the week ending Oct. 2, according to the Energy Information Administration. That’s less than 1% of the more than 28 million barrels per day the world consumes, according to the International Energy Agency.
“You don’t even touch the sides. It’s very small,” Neil Atkinson, former head of the IEA’s oil industries and markets division, told CNBC’s “Squawk Box Europe” on Monday.
Total US demand for 10 days
Russia plans to ship another 500,000 tonnes, or 3.73 million barrels, in November, followed by 1 million tonnes, or 7.45 million barrels, soon after. President Trump said Russia plans to release 3 million tons or 22.35 million barrels at a later date, depending on the situation at domestic refineries.
Goldman Sachs estimated on Monday that Russian diesel, scheduled for release in October and November, would only reduce wholesale diesel prices by $1 to $2 a barrel in the U.S. Gulf Coast and Europe.
If the deal is implemented as announced by the president, President Trump’s diesel deal with Russia would total 4.8 million tons, or 35.76 million barrels, to the market. This is equivalent to approximately 10 days of U.S. domestic demand, or slightly more than 1 day of global demand.
But because the United States is a net exporter of diesel, supplies from Russia are not needed, said Andy Lipow, president of Lipow Oil Associates. The European Union has banned imports of Russian crude oil and refined products. Kpler analysts said in a note Monday that Russian diesel will help ease competition for U.S. barrels in countries such as Brazil and Turkey.
“Volumes will have little effect in the medium to long term,” Daniel Hines, senior commodity strategist at ANZ, told CNBC’s “Squawk Box Asia” on Monday.
political pressure
Diesel futures were little moved on the deal on Monday, closing about 1 cent lower, but rose on Tuesday. Lipow said this is a sign that the market sees the deal as little more than a verbal intervention by President Trump to show consumers he is taking action on fuel prices.
President Trump’s deal with Russia comes with less than a month to go until the U.S. midterm elections and amid pressure to lower fuel prices. U.S. diesel prices averaged $6.28 a gallon on Tuesday, up 72% from a year ago, according to AAA.
Prices soared after Ukraine attacked a Russian refinery. Iran and its Houthi allies have also attacked refineries in the Middle East, disrupting exports through the Strait of Hormuz and tightening fuel supplies.
Atkinson said it was unclear where the Russian diesel included in Trump’s deal would come from, given that the Russian government has halted exports following Ukraine’s attacks on refineries, pipelines and storage facilities.
The Kremlin announced on Saturday that it would partially lift the export embargo in order to deliver the quantities agreed with the United States, the state-run TASS news agency reported.
Limited options, more confusion
President Trump has limited options to address diesel prices. The president toyed with banning U.S. diesel exports, but dropped the idea, citing the potential for rising gasoline prices. The average cost of regular gasoline is $4.34 per gallon, up from $3.08 a year ago, according to AAA. President Trump issued an executive order last week allowing truckers to use tax-free off-road diesel on highways, but not exempting them from tax liability.
Hines said refining capacity needs to be returned to the market to improve the situation. But constraints remain in the Middle East, and the risk of further attacks on Russian refineries is high, he said.
Ukrainian President Volodymyr Zelenskiy said Monday that Russia has already violated the energy ceasefire that President Trump declared on Sunday. President Zelensky warned that Kiev would respond if Russia did not abide by the ceasefire.
Goldman estimated that Russia’s refinery outages have increased by 3 million barrels a day since this time last year, “making it difficult to increase diesel production.”
