Brazil boosts Russian diesel imports by more than 700%

Recently, ships carrying thousands of barrels of diesel from Russia were spotted along the Brazilian coast, as per data compiled by Bloomberg from Kpler. This example helps illustrate the staggering 700% surge in fuel imports from Russia by Brazil, a nation that relies on imports for between 25% to 30% of its domestic fuel consumption.

Dispute

According to experts, this notable surge is driven by Russia’s strategic decision to undercut the market price of diesel by R$ 0.22 (-5.9%), aimed at securing new markets. This move comes in the wake of the conflict in Ukraine, which has disrupted Russia’s access to traditional buyers such as the United States and European Union countries.

Data released by the Brazilian Foreign Trade Association (AEB) reveals a remarkable surge in diesel imports from Russia during the first two months of this year. The figures show imports totaling 1.121 million tons, marking an 830.5% increase compared to the 120.526 thousand tons purchased during the same period the previous year. In terms of value, these imports amounted to US$ 818.730 million, reflecting a staggering 734.9% increase compared to January to February 2023.

Market Reorganization

This surge occurs against the backdrop of heightened demand for diesel in Brazil. In the initial months of this year, overall fuel imports surged by 7.41% compared to the corresponding period in 2023. Internationally, the price of Brent crude oil soared from US$ 77 at the beginning of the year to over US$ 90 in recent days.

According to Sergio Araujo, CEO of Abicom, which represents fuel importers, Russian diesel has been capturing a larger market share due to its more competitive pricing at major Brazilian ports. Araujo notes a significant rise in Russian diesel market share, from virtually zero in 2022 to a commanding 50% share of imports in Brazil in 2023. This year, that figure has surged to 70%. Conversely, the U.S. share has plummeted from 57% to 24%, now resting at 15%.

“Russian diesel has become highly sought after due to its competitive pricing on the international stage. This trend is expected to persist, given the ongoing conflict and consequent international sanctions,” Araujo asserts.

The import appetite of Brazil, a nation that has refrained from joining embargoes like the U.S. and the European Union, is evident in the European Waterborne Products report from consulting firm Wood Mackenzie. Between January and March of this year, Turkey led the pack as the largest importer of Russian diesel (32% of the total), followed closely by Brazil (27%), with other nations like Morocco (5%), Ghana (5%), Libya (5%), and Tunisia (4%) also featuring prominently. A further 35 countries collectively accounted for less than 4% of Russian diesel exports.

“Despite existing embargoes, Russian diesel has found buyers unencumbered by significant restrictions. The proliferation of these embargoes has precipitated a market reorganization, spawning new logistical routes, attracting new buyers, engaging new carriers, and influencing new price dynamics,” assesses Rodrigo Jacob, Downstream Research Analyst for Latin America at Wood Mackenzie.

Russia dominantly leads the list of countries selling diesel to Brazil. The United States trails behind, accounting for approximately a quarter of the Russian diesel value sold between January and February, totaling US$ 197.5 million, followed by the United Arab Emirates at US$ 168.3 million.

Amidst this evolving market structure, Russian diesel barrels have found their way into the Brazilian market, redirecting U.S. diesel exports toward Europe. Currently, Russia’s primary export product remains crude oil, with a volume nearly eight times higher than that of fuels, predominantly destined for countries like China and India.

“Any alterations in restrictions are poised to recalibrate the dynamics of Russian exports, potentially reshaping economically favorable destinations for Russian diesel,” notes Wood’s Jacob.

Meanwhile, to safeguard its market share, Petrobras has maintained diesel prices at even lower levels. Abicom reports that the state-owned company is currently selling at a price R$ 0.54 lower (-14%) compared to international rates.

“While Petrobras’ cost remains undisclosed, the company could feasibly command higher prices for diesel. It’s been over a hundred days without any price adjustments,” highlights Araujo, underscoring that Petrobras, with shares traded in the United States, abstains from purchasing fuel from Russia, a practice observed by U.S. and European-based firms alike.

Source: O Globo

Click here to read the original news report: https://oglobo.globo.com/economia/negocios/noticia/2024/04/14/importacao-de-diesel-russo-pelo-brasil-dispara-mais-de-700percent-em-meio-a-sancoes.ghtml

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