Brazil Imports More ‘Dirt Cheap’ Russian Diesel at Expense of US

4gihw]d22]mo14kae4td65l8_media_dl_1.png Vortexa

Article content

(Bloomberg) — Brazil is once again importing major volumes of heavily discounted diesel from Russia, at the expense of shipments from the US.

Article content

The shift is largely explained by a rebound in production at Russian refineries, which have recovered from a punishing string of attacks by Ukraine. Brazil is one of just a relatively short list of destinations for Russian fuel due to sanctions.

Article content

Article content

Article content

Shipments of Russian diesel to Brazil have averaged around 151,000 barrels a day in January, the most since last June and a near threefold increase from roughly 58,000 barrels in December, according to data from Vortexa. Meanwhile, imports from the US fell by around 20,000 barrels a day month on month, another potential pain point for American refiners who are already grappling with declining exports to Mexico. 

Article content

Article content

“Russia supply is dirt cheap,” said Samantha Hartke, head of market analysis at Vortexa. “It has to be discounted to make that long-haul voyage and it’s a distressed barrel.”

Article content

It’s the second stark shift in Brazil’s fuel-buying habits in less than a year. The country has weighed strong economic incentives to take in Russian distillates against concerns about being punished for doing so and its tense trade relationship with the US.

Article content

Brazil turned to Russian fuels beginning in 2023, picking up discounted barrels displaced from European markets. But last summer, tensions between the US and Brazil flared. President Donald Trump raised trade tariffs on Brazil to 50% before issuing a long list of exempted goods. Shortly afterward, Trump separately doubled tariffs on Indian goods to 50% as a penalty for the country’s purchases of Russian energy. That prompted Brazil’s oil industry to evaluate its own supply chains.

Article content

Article content

Around the same time, a flurry of Ukrainian attacks on Russian oil refineries began, hampering the country’s capacity to produce diesel, while production at US refineries began to surge at favorable margins, said James Noel-Beswick, head of commodities at Sparta.

Article content

Russia’s share of the diesel imported to Brazil, which stood at around 70% in June last year, dwindled to as low as 19% by November. Over the same period, the US’s share grew from 20% to over 50%.

Article content

But that reversal now appears to have been short-lived. With the European Union’s new ban on refined product imports made with Russian crude, Russia’s own refineries are running hard, Hartke said. And with few destinations for the fuel other than Turkey and a handful of North African nations, the discount has grown too large for Brazilian importers to ignore as the country begins its soybean harvesting season.

Article content

“Overall, you are seeing EU shy away from Russian diesel barrels,” Valero Energy Corp. Chief Operating Officer Gary Simmons said on the company’s earnings conference call Thursday. “The big area we saw some of those barrels were going to [is] South America.”