Trumps' Russia diesel deal will do little for U.S. prices, analysts say

President Trump's agreement with Russia to supply hundreds of thousands of tons of diesel to the U.S. and global market is unlikely to significantly lower prices for American consumers, most analysts said Monday.

Last Friday, Trump announced that Russia would release 300K metric tons of diesel, equivalent to ~75K bbl/day, which Lipow Oil Associates president Andrew Lipow said would have "very little impact on diesel prices here in the U.S." related to global diesel demand, which stands at ~28M bbl/day.

Trump said Russia will also provide another 500K tons of diesel in November, 1M tons after that, and then another 3M tons based on the condition of Russia's refineries, which have been damaged in the war against Ukraine, and Lipow said he is skeptical that Russia would be able to perform and export that amount of diesel.

The impact on diesel prices likely will be limited, with most of the decline seen in Friday’s initial retreat, Ritterbusch & Associates said in a note, doubting that a price reduction could take hold in time for the U.S. ​midterm elections on November 3.

The most likely effect will be a slowdown in U.S. distillate exports later this month, "but U.S. diesel exports have already tapered off in recent weeks after posting a record high in early August," Ritterbusch said.

"The release will be developing gradually ​through the rest of this year, ​and the expected amounts during the ⁠coming month don't appear capable of forcing much additional downside price pressure," Ritterbusch wrote.

"We expect this deal to fail economically," Singapore's Quantum Strategy said in a report. "We expect Putin to read the deal as an open invitation to escalate his gray-zone warfare in Europe to a much higher level. The effects would be negative for the euro and for E.U. sovereign debt, as European powers scramble to ensure their defense."

"Where the volumes to supply the Trump deal come from is a mystery, unless it comes from domestic supply, which will cripple the Russian economy," Neil Atkinson, former head of the oil division at the International Energy Agency, told CNBC.

Atkinson noted the G7 recently authorized the release of 50M barrels of oil products, mainly diesel, but "it has made almost zero difference to the underlying diesel market tightness... The same will be true of the new U.S.-Russian deal to allow exports from Russia."

"Even if the initial 300K tons were available tomorrow, it would have little impact," Atkinson said. "The lack of impact is because the U.S. uses 3.7M bbl/day of diesel. The world uses 29M bbl/day of diesel. The U.S. is sitting on 105M barrels of commercial diesel stocks."

"The immediate impact of the deal is questionable, as Russia’s refining ​capacity has been severely ⁠reduced," PVM analyst Tamas Varga said in a note.

"Moscow has partially lifted its ban on diesel exports, allowing 500K tons to be released onto the international market, equivalent to roughly one day of U.S. consumption and ~13% of global demand."

Crude oil futures rose ~2% on Monday as attacks ​on Saudi Arabia outweighed prospects for increased Russian diesel supplies and skepticism over a potential Russia-Ukraine energy ceasefire; diesel prices were mixed, with contracts seeing small movements.

"The market is pricing elevated Middle East supply risks more heavily than the uncertain prospect of extra Russian volumes," Price Futures analyst Phil Flynn said in a note. "Headlines around Saudi assets and Hormuz continue to dominate near-term price action."

Front-month Nymex crude (CL1:COM) for November delivery gained 2% to $93.74/bbl, its highest settlement value since September 24, and front-month Brent crude (CO1:COM) for December delivery both added 1.8% to $106.65/bbl, its best close since September 15.

Front-month Nymex ULSD (HO1:COM) for November delivery fell 0.3% to $4.7232/gal, and front-month Nymex RBOB November gasoline (XB1:COM) slipped 0.1% to $3.2917/gal.

U.S. natural gas futures (NG1:COM) gave back Friday’s gains as warmer weekend weather forecasts limit early-season heating demand, with the front-month November contract sliding 1.6% to settle at $3.1670/MMBtu.

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