World’s Biggest Energy Traders Issue Warning: ‘Gas Stations Will Run Dry’
as much as 3 million barrels of oil and its products a day could be lost
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As the world focuses on crude oil and gasoline shortages, a more disastrous scenario is playing out in diesel, which is critical in keeping the world running.
ZeroHedge published these headlines on the topic in the past few weeks:
Diesel Is The U.S. Economy’s Inflation Canary - Feb 8
U.S. Diesel Stocks Set To Fall Critically Low - Feb 18
China Asks State-Owned Refiners To Halt Gasoline, Diesel Exports - Mar 10
Global Diesel Shortage Raises Risk Of Even Greater Oil Price Spike - Mar 12
The warning was echoed by heads of one of the largest commodity trading houses and the biggest independent oil trader who were speaking at the FT Commodities Global Summit in Lausanne, Switzerland on Tuesday.
According to corporate leaders, as much as 3 million barrels of oil and its products a day could be lost from Russia as a result of sanctions.
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Global markets face a squeeze on diesel, with Europe most at risk of a “systemic” shortage that could lead to fuel rationing.
“The thing that everybody’s concerned about will be diesel supplies. Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East,” said Russell Hardy, chief of Switzerland-based oil trader Vitol.
“That systemic shortfall of diesel is there.”
According to the FT, the imports mean Russian supplies account for about 15% of Europe’s diesel consumption.
Hardy said the shift to more diesel consumption over gasoline in Europe had helped to create shortages of fuel.
He also said refineries could boost their diesel output in response to higher prices at the expense of other oil-derived products but warned rationing was a possibility.
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Torbjorn Tornqvist, co-founder and chair of Geneva-headquartered Gunvor Group, added: “Diesel is not just a European problem; this is a global problem. It really is.”
Tornqvist also warned that European gas markets were no longer functioning properly as traders faced huge demands from banks for cash to cover hedging positions.
“I think it’s broken. It really is,” he said.
“I never thought that somebody could say, ‘ah, gas has fallen below 100 per megawatt-hours is really cheap’.”
Gas futures linked to TTF, Europe’s wholesale gas price, have swung from about €70 a megawatt-hour before Russia’s invasion of Ukraine to about €230 two weeks ago and then slid below €100 this week.
Before May 2021, European gas prices were below €20 a megawatt-hour.
As noted by ZeroHedge:
Europe’s largest energy traders called on governments and central banks to provide emergency liquidity support to keep gas and power markets functioning as sharp price moves triggered by the Ukraine crisis have strained commodity markets.
Hardy said that to move a cargo equivalent to 1 megawatt-hour of liquefied natural gas priced at €97, traders must provide €80 in cash, straining their capital requirements.
Worse, confirming that Europe faces an even colder winter, Tornqvist said European utilities would struggle to fill gas storage for next winter given the “paralyzed” state of the spot market for gas unless policymakers stepped in to provide guarantees to protect buyers against price swings.
