Russian diesel: Donald Trump's deal would bring little relief on prices, analysts cited by CNBC say

A deal announced ahead of the midterm elections

According to CNBC, U.S. President Donald Trump is seeking to ease the diesel shortage ahead of the November midterm elections. However, the analysts interviewed believe his initiatives are unlikely to lower prices significantly. Donald Trump announced an agreement under which Russia would release 300,000 metric tons for the United States and global markets, immediately. This would be followed by 500,000 tons in November, then 1 million tons after that.

According to the U.S. president, Moscow would then deliver an additional 3 million tons, depending on the state of its refineries. The U.S. Treasury issued a temporary license easing sanctions on Russian diesel to facilitate the deal, announced Friday, according to CNBC.

An "energy ceasefire" that caught people off guard

On Sunday, Donald Trump also declared an "energy ceasefire" between Russia and Ukraine. According to CNBC, the announcement surprised political leaders around the world, Kyiv included. Oil prices fell Monday, even though Russia struck a power plant shortly afterward, before rebounding.

A political stake and diesel at a record level

Also according to CNBC, the president is seeking to contain inflation before these elections, in which his Republican Party risks losing both chambers of Congress. According to the Pew Research Center, 84% of registered voters consider the economy "very important" to their vote.

The average price of diesel reached a record $6.5276 per gallon at the end of September, according to AAA. The wars in Ukraine and the Middle East have weighed on supply.

Analysts skeptical about the real effect

Mohit Kumar, Europe chief economist at Jefferies, wrote in a note that Donald Trump is exploring every avenue to bring down diesel prices before the vote. He adds that the deal with Russia is drawing opposition from some Americans and European leaders, because it circumvents existing sanctions. Increased supply would ease some tensions, but the agreed volumes should not change much, he says.

Lombard Odier analysts describe the deal, like China's plans to resume exports of refined fuels, as "potentially significant." They explain that diesel shortages have amplified the inflationary effects of the disruption to energy supply, particularly in transportation, agriculture and industrial production. They caution, however, that announced shipments are not the same as delivered supply. Neither agreement immediately restores the damaged infrastructure or normalizes maritime transport, they say.

Neil Atkinson, former head of the oil division at the International Energy Agency, is more pessimistic in a note shared with CNBC. In his view, the origin of the volumes earmarked for the deal remains a mystery, unless they come from Russia's domestic supply, which would heavily penalize the country's economy.

He recalls that the G7 recently authorized the release of 50 million barrels of petroleum products, mostly diesel. This, he says, has done almost nothing to ease the underlying tension in the market, given the lack of details on quantities, timing and locations. He believes the new U.S.-Russia agreement will meet the same fate: even if the initial 300,000 tons were available tomorrow, the effect would be limited.

He explains this lack of impact by the scale of demand: the United States consumes 3.7 million barrels of diesel per day and the world 29 million. The United States holds 105 million barrels of commercial diesel stocks. Before the war, the Gulf exported nearly 1 million barrels per day of diesel, and this capacity remains largely lost due to damage to refineries and difficulties in seaborne exports, he says.

An even gloomier reading in Singapore

In a note to clients, analysts at Quantum Strategy, based in Singapore, write that they expect the deal to fail economically. They remain positioned long on distillates and crude, and short U.S. assets. They also anticipate that Vladimir Putin will see it as an invitation to intensify his gray-zone war in Europe. This would have negative effects on the euro and on European Union sovereign debt, they believe, as Europeans would need to strengthen their defenses.

Analysis

The sources agree on one point: the political announcement and the physical volume do not match. The analysts cited highlight the size of the market, the uncertainty surrounding deliveries and the lasting damage to supply. Overall, they judge that the deal will not be enough to quickly ease the diesel market. Only Lombard Odier credits it with significant potential, with caveats.