• Crude oil prices erase almost all gains since October 22 US sanctions on Russia
• Diesel spreads remain elevated as conflict constrains global supplies
• EU ban on imports of fuels processed from Russian crude takes effect in January

LONDON, Nov 24 (Reuters) - Oil prices eased on hopes for a U.S.-brokered Ukraine ceasefire, but diesel spreads remain stubbornly high as the war keeps global supplies squeezed with little sign of relief.

Crude oil prices have dropped by around 1.2% since the November 20 announcement that the United States was brokering a ceasefire initiative to end the conflict that began with Russia’s full-scale invasion of Ukraine in 2022.

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The 28-point plan appears to have little chance of being accepted by Kyiv, as the proposal accepts most of Russia's key wartime demands. But U.S. President Donald Trump's backing of it remains significant, as it highlights how keen the White House is to hammer out a deal and get Moscow on board, whatever the cost.

That, of course, calls into question the U.S. president’s appetite to enforce or ratchet up existing sanctions.

Crude prices certainly suggest as much. They initially jumped after Trump on October 22 imposed sanctions on Russia's two top oil companies, Rosneft and Lukoil, but most of those gains have now disappeared. The sanctions took effect on November 21.

Diesel is a different story, however. While benchmark European diesel prices have declined since news of the ceasefire discussions broke last week, prices remain around 8% above their October 22 levels. Moreover, diesel refining margins - the profit made from converting crude oil into fuel – have risen by 17% over that period to roughly $29 a barrel.

DIVERGING SUPPLY OUTLOOKS

This divergence has several causes. First, global diesel output is low, while the crude market is believed to be on the cusp of a huge glut, with the International Energy Agency forecasting crude supply to exceed demand by 4 million bpd next year.

Diesel supply has taken a big hit in recent months. Russia is the world's second-largest diesel exporter after the United States. Ukraine's continued attacks on Russian refineries and export facilities have significantly curtailed Moscow’s fuels exports, with diesel shipments totalling just 669,000 bpd in October, only slightly higher than in September, when exports hit their lowest point since the Covid-19 pandemic.

U.S. sanctions on Rosneft and Lukoil have further disrupted diesel supply. The two oil giants collectively exported so far this year around 270,000 bpd of diesel, roughly 37% of total Russian exports and 9% of global exports, according to Kpler. Sanctions will likely make Turkey and Brazil, the main buyers of Russian diesel, seek out other sources, increasing demand for the limited supply of non-sanctioned diesel.

EUROPE TIGHTENS RUSSIAN BAN

Perhaps more significant for diesel prices is the European Union's latest sanctions package against Russia that is set to take effect on January 21. These measures ban imports of fuels made from Russian crude into the EU, one of the world’s largest diesel markets.

The Intercontinental Exchange (ICE), which operates the benchmark European diesel contract, said on November 18 that it will stop taking delivery of diesel that originates from refineries that processed Russian crude in the previous 60 days starting on January 16.

These bans close a loophole that primarily benefited refiners in India and Turkey, which had been buying discounted Russian crude, processing it into diesel and then exporting it to Europe. The two countries accounted for 13% of Europe’s diesel imports of roughly 1.8 million bpd so far this year.

Many large refiners have responded quickly.

India's Reliance Industries, which accounts for the vast majority of India's diesel exports to Europe, said it had stopped importing Russian crude at its Jamnagar refining complex on November 20.

While that may be too late to comply with the new ICE rules, the impact of the EU measures is clear. Indian diesel exports to the EU and Britain have plunged in November to 34,000 bpd, compared with an average of 136,000 bpd so far this year, according to Kpler.

U.S. COMES OUT ON TOP

The main beneficiaries of all these dislocations appear to be U.S. Gulf Coast refineries that are set to increase diesel exports to Europe.

A key measure for U.S. refining profitability, the so called 3-2-1 crack spread, has gained 12% since October 22, according to LSEG data.

To be sure, the current disruptions in the diesel market will gradually ease as markets recalibrate and new diesel routes are established. For example, discounted Russian diesel is likely to find a home in markets such as China.

But, for now, the movements in the diesel market are sending an important signal. The chances of EU sanctions being fully lifted – something that would likely have a disproportionate impact on diesel versus crude prices – are low even if Trump does manage to engineer a resolution to this nearly four-year long conflict.

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https://www.reuters.com/markets/commodities/diesel-doesnt-share-crudes-optimism-about-ukraine-peace-plan-2025-11-24/