Stricter oil embargo against Russia: Are diesel and heating oil becoming more expensive now?

The third part of the EU embargo on Russian oil comes into force today. Are diesel and heating oil customers now threatened with a rude awakening because of the loss of deliveries from Russia?

The EU has triggered the third stage of its embargo on Russian oil. After stopping Russian oil imports into the EU via sea and the Druzhba pipeline, refined petroleum products are now affected – such as diesel, heating oil and kerosene. The aim is to further empty the war chest of the Kremlin ruler Vladimir Putin. But not only Putin is likely to be hit hard by the new embargo. After all, Russia is by far the most important diesel supplier for Germany and the EU.

“We are faced with the challenge of replacing around four million tons of diesel per year in Germany that have so far been imported from Russia. That corresponds to around one eighth of the demand,” explains Christian Küchen, CEO of en2x, a lobbying association for the mineral oil industry.

Still great dependency on Russia

A look at the monthly oil report from the International Energy Agency (IEA) also shows how dependent the economies of the European Union are on Russian diesel deliveries. According to this, in December the EU imported more than 700,000 barrels of diesel per day from Russia. That was the highest value since March 2021.

“After the decision on the oil embargo, the EU countries had eight months to become less dependent on diesel deliveries from Russia. But they didn’t do anything,” complained Christian Fritsch, a commodity expert at Commerzbank tagesschau.de.

Oil and diesel market relaxed so far

In the run-up to the oil embargo, the atmosphere on the oil and diesel market was remarkably relaxed. The price of a barrel of North Sea oil had fallen sharply to around $82 since the end of January. At German petrol stations, the price for a liter of diesel fell by 2.6 cents to an average of 1.832 euros in the week ended January 31st.

“Market participants seem to have taken the embargo quite calmly so far. However, I strongly doubt that the new stage of the oil embargo will leave the markets untouched. I would be surprised if there weren’t any friction,” says Fritsch.

Commodity expert: Diesel price is likely to rise

In fact, the missing mineral oil products from Russia will have to be replaced by additional imports from February 5, for example from Asia, the USA or the Arab world. This will significantly increase the transport routes for diesel and heating oil. At the same time, the demand for tankers that transport diesel and heating oil to Europe will increase.

“This means higher transport costs and a shortage of tanker capacity. The bottom line is that less diesel will be available on the world market. All of this tends to increase prices,” explains raw materials expert Fritsch.

For the ADAC, the diesel import ban is meanwhile no reason for higher prices. According to the lobby association, “currently sees no reason for price increases at the petrol pumps”. According to the ADAC, fuel prices are already significantly inflated.

“Driving Season” should exacerbate the problem

Market expert Robert Rethfeld from Wellenreiter-Invest, on the other hand, expects noticeable market reactions to the oil embargo and points out an additional problem: “From a price point of view, the time for the oil embargo to come into force is unfavorable because the ‘driving season’ begins in March or April. ”

The period before Easter and until Pentecost is usually accompanied by a sharp increase in traffic, which is reflected in rising oil prices. Against the background of this seasonal effect, price increases for diesel are unavoidable, Rethfeld emphasizes tagesschau.de.

The timing of the embargo is unfavorable from a price perspective, but also with a view to China: The People’s Republic is gradually reopening its economy after the strict corona lockdowns; higher global demand for diesel meets reduced supply.

Indirect effects for consumers possible

However, rising diesel prices are likely to go hand in hand with rising heating oil prices. “In principle, heating oil and diesel are the same product, they are only declared differently as heating oil and diesel,” explains Rethfeld. All in all, there could soon be a rude awakening for heating oil and diesel customers in view of the rising prices as a result of the embargo.

The citizens of the EU should not only feel the effects of the oil embargo directly in the form of rising diesel and heating oil prices. Indirect effects will probably also be inevitable if the companies’ increasing transport and production costs are passed on to the end consumer, for example in the supermarkets.