Oil price volatility is wreaking havoc on the global economy, but experts say it’s nothing compared to the impending fuel scarcity.
Since Russian President Vladimir Putin’s invasion of Ukraine at the end of February, global energy markets have been a roller coaster ride, with Western nations imposing sanctions and private oil and gas corporations pulling out.
The disruption of trade flows with Russia, the continent’s major fuel supplier, has hurt Europe the hardest. The CEOs of three major commodities trading organisations stated Tuesday at the Financial Times’ annual Commodities Global Summit in Switzerland that the country may be facing a historic diesel scarcity.
“About half of Europe’s diesel comes from Russia, and the other half comes from the Middle East,” said Russell Hardy, CEO of energy trading giant Vitol, during the conference. “There is a chronic shortage of diesel.”
Executives cautioned that the shortage’s acute conditions could result in diminishing supply for the remainder of the year, forcing EU governments to restrict fuel.
“The diesel market is incredibly competitive. At the event, Jeremy Weir, CEO of commodity trading giant Trafigura, warned, “It’s going to get tighter.”
Torbjörn Törnqvist, CEO of commodity group Gunvor, similarly projected that Europe’s energy supplies would remain low until next year, describing the current energy market as “paralysed.”
“This is a global issue, but because Europe is so small, it’s particularly difficult,” Törnqvist added.
Russia supplies about two-thirds of Europe’s foreign crude oil, which is converted into diesel. In addition, the conflict in Ukraine has highlighted Europe’s heavy reliance on Russian energy.
The sting of a diesel shortage will be felt in Europe, but as oil and gas supplies reach dangerously low levels, actions to conserve fuel are being suggested everywhere, including the United States. The International Energy Agency, a worldwide energy watchdog, recommended a list of methods to deal with oil and gas shortages on Friday, including car-free Sundays and lower speed restrictions on roads, similar to what was done during the 1970s oil crisis.
Diesel fuel is primarily used for farm and construction equipment in the United States, although it is also utilised in many ordinary cars in Europe. In Europe, diesel fuel was used by 42 percent of automobiles in 2019. According to the European Automobile Manufacturers Association, that number was significantly greater in several countries, such as Spain, Ireland, France, and Austria, where well over half of all cars required diesel.
According to Amrita Sen, chief oil expert at research and consultancy firm Energy Aspects, who also spoke at the event, Europe imports roughly 1 million barrels of Russian diesel each day. Diesel, according to Sen, is “by far the worst affected” of all oil products for European markets.
Diesel prices in Europe had been expected to climb for some time due to new EU laws and carbon emissions tariffs, but the Ukraine invasion and supply constraint have already pushed them skyrocketing to record highs in the United Kingdom and Europe.
In the midst of the shortfall, the EU is looking for fresh fuel supplies to help it weather the storm. Europe is collaborating to enhance diesel trade flows with Middle Eastern and Asian countries, and two US fuel tankers recently departed port in New York delivering 700,000 barrels of diesel to Europe, reversing regular trade routes.