by Ben Xie
NEW YORK, Oct. 11 (Xinhua) -- The United States on Friday temporarily lifted sanctions on Russia's export of diesel in a bid to ease a global fuel shortage and curb soaring domestic prices, but analysts warn that limited supplies and damage to Russian refineries could possibly blunt the impact.
U.S. President Donald Trump said on Friday that he had struck a deal with Russian President Vladimir Putin during a phone call. On the same day, the U.S. Treasury Department's Office of Foreign Assets Control issued a temporary general license, authorizing Russian diesel transactions until April 7, 2027.
Under the phased schedule, Russia would deliver 2.25 million barrels in October, 3.75 million in November and 7.5 million "immediately thereafter," depending on the condition of Russian refineries. Russian Deputy Prime Minister Alexander Novak confirmed the volumes.
U.S. diesel averaged 6.28 dollars a gallon on Friday, according to the American Automobile Association, down from a record 6.53 dollars on Sept. 22, but still far above 3.68 dollars a year earlier, and up about 70 percent since the U.S.-Israel war with Iran began on Feb. 28.
A Pew Research Center survey released Oct. 8 found that 74 percent of Americans were "very concerned" about energy prices, and 84 percent of registered voters said the economy was "very important" to their vote in the Nov. 3 mid-term elections.
On Saturday, the Russian government partially lifted its diesel export ban with immediate effect, allowing 500,000 tons to reach the global market, with Novak saying domestic supplies would not be affected.
However, analysts said that the U.S. relief on sanctions on Russian diesel is unlikely to help tame domestic diesel prices, which hover at close to record-high levels and threaten Republican control of Congress in the upcoming elections.
The International Energy Agency (IEA) says the world is short about 1.6 million barrels of diesel daily. Even if all 36 million barrels Russia promised arrived at once, they would plug the gap for only about three weeks.
The October release alone is roughly 10 percent of what Russia exported in a typical month before Ukrainian drone strikes battered its refineries, according to analysts.
"It's kind of shuffling deck chairs on the Titanic," a report by The Seattle Times quoted Michael Lynch of the Energy Policy Research Foundation as saying. Russian diesel sent to the United States simply means that other buyers must look elsewhere. At best, he said, Americans might see "a tiny dip in prices locally in places like the New York-New Jersey area."
"It's clearly not a fix, but another stream to aid a very tight diesel market," Jim Mitchell, director of oil trading analytics at consultancy Wood Mackenzie, was quoted as saying by Reuters.
"The biggest concern is the refiners being able to do it," Ryan McKay, senior commodity strategist at TD Securities, a Canadian multinational investment bank and financial services provider, was quoted as saying by the Business Times.
The November shipment amounts to roughly one day of U.S. consumption, noted Chris Kennedy, lead for Economic Statecraft at Bloomberg Economics. He questioned whether Moscow can deliver given refinery damage, logistics and legal hurdles, with the largest later tranches explicitly conditioned on the state of Russia's refineries.
To make matters worse, Hurricane Isaias in the Gulf of Mexico has now shut down about 1.3 million barrels a day of U.S. oil production, which equals nearly 63 percent of total U.S. production in the gulf.
The Iran war also continues to disrupt flows through the Strait of Hormuz, which carried about 20 percent of global oil and fuel shipments before the war.
As part of an accelerated IEA emergency-stock release, Germany will release up to 15 million barrels of diesel, heating oil and crude, while France has committed 10 million barrels of diesel. Moreover, Italy says it has completed its 10 million-barrel commitment.
The Russian barrels address the shortage from the output side, while the stock releases address it from the inventory side. However, analysts say neither is large enough to repair the market on its own.
Patrick De Haan, head of petroleum analysis for GasBuddy, predicted that the deal could result in a short-term reduction of 10 to 20 cents for a gallon of diesel. However, he said, it would be "difficult to achieve" Trump's import goals. ■