Russia diesel ban jolts crude premiums ahead of winter

By Natalie Grover, Robert Harvey and Alex Lawler

LONDON, Oct 6 (Reuters) - Premiums for the type of crude oil best suited to producing diesel, heating oil and jet fuel have risen sharply as the Northern hemisphere heads into winter amid a global supply crunch, several traders told Reuters.

Oil markets are tight as OPEC and its allies restrict supplies. Saudi Arabia and Russia have curbed output by an additional 1.3. million barrels per day (bpd) in addition to agreed OPEC+ cuts.

Russia, the world's top seaborne diesel exporter, imposed a ban on fuel exports in late September. However, on Friday, Moscow lifted the ban on pipeline diesel exports via ports, removing the bulk of restrictions, although curbs on gasoline exports remain.

The recent ban has left diesel supplies short, encouraging refiners to make more. For that, they are seeking to buy the medium-sweet crude that yields more of the fuel group known as distillates when it is refined.

Differentials for such Nigerian grades are at their highest levels since August 2022, after the Russian invasion of Ukraine in February 2022 sent crude prices soaring, according to LSEG data.

Bonga, for instance, is being offered at dated Brent plus $9 a barrel, while Escravos and Forcados are in excess of dated Brent plus $8, said a trader of West African crude.

Differentials for Angolan grades of crude, which are lighter than those from Nigeria, have also gone up, another trader of West African crude said.

"Sellers are betting on a market deficit," a third trader of West African crude said.

The upward pressure on medium sweet crude has also been seen elsewhere. In Brazil, differentials for medium-sweet crude grades have risen by at least $2 a barrel since the last cycle, a trader of Brazilian crude told Reuters.

Demand from Europe and Asia is strong, the trader said.

LIGHTER CRUDE WEAKER

Lighter crudes including from Nigeria which have a lower diesel yield have also rallied although not to the same extent, traders said.

"Differentials are strong across the board, but the more diesel-rich crudes are doing better," another trader said.

Across the Atlantic, differentials for light sweet U.S. crude grades, which have a lower diesel yield, have weakened.

The U.S. West Texas Intermediate crude discount to the international benchmark Brent narrowed last week to as little as $2.56 a barrel, the narrowest since May 2022. That discouraged exports of U.S. crude abroad, and weakened differentials for light sweet crudes, traders said.

WTI Midland , a light sweet U.S. grade, weakened to an 80-cent premium to U.S. crude futures last week, the weakest since May. Light Louisiana Sweet weakened to a 93-cent premium to U.S. crude futures, the weakest since December 2022.

But European refiners need to produce enough diesel to cover this winter, so they are willing to pay higher premiums for heavier crudes from West Africa and beyond.

Still, even with a narrower spread, U.S. light sweet grades still have seen some demand from buyers in Asia, because of tighter global supply and limited choice, a U.S.-based trader said. (Reporting by Natalie Grover, Alex Lawler, Robert Harvey and Ron Bousso in London and Stephanie Kelly in New York; Editing by Susan Fenton)