A shortage of diesel in the global market is causing Russia’s Eastern Siberia-Pacific Ocean (ESPO) crude blend to trade at a premium to the benchmark Brent grade, according to Bloomberg. The ESPO crude blend, named after the pipeline that transports it to export markets, is currently trading at a premium of about $0.50 per barrel to Brent on a delivered basis for October shipments to China.
This increase in price is due to the global shortage of diesel and the suitability of ESPO crude for diesel fuel production. ESPO saw its biggest price increase since the G7 and the European Union introduced a price cap on Russian oil and petroleum products in an attempt to reduce Moscow’s energy revenues. Viktor Katona, lead crude analyst at energy analytics firm Kpler, stated that the last time ESPO traded at a premium to Brent was in November 2022.
Private refineries and Chinese state processing plants have increased their purchases of ESPO, with the latter taking up to seven more cargoes of October-loading ESPO than usual. This surge in demand has contributed to the price premium for the crude blend.
The shortage of diesel in the global energy market is a result of refineries failing to produce enough of the key industrial fuel. Saudi Arabia and Russia, the heavyweights in the OPEC+ alliance, have reduced their production and exports of denser, more-sulfurous crude that is used to produce diesel fuel. This reduction in supply has further exacerbated the scarcity of diesel.
Diesel inventories worldwide are significantly lower than usual for this time of the year, despite an industrial slowdown in key markets in the European Union and the United States. The shortage of diesel is impacting various industries and transportation, as diesel fuel is vital for these sectors.
Overall, the shortage of diesel in the global market is benefiting Russia’s ESPO crude blend, which is trading at a premium to the benchmark Brent grade. The increase in price is due to the global shortage of diesel and the suitability of ESPO crude for diesel fuel production. Private refineries and Chinese state processing plants have increased their purchases, leading to a surge in demand for ESPO. The shortage of diesel has been exacerbated by reductions in production and exports of crude used to produce diesel fuel by Saudi Arabia and Russia.