Rowena Edwards and Ron Bousso

LONDON, (Reuters) – Russian diesel trades at a significant discount to other fuels, traders claimed. This creates a potential lucrative market window of two-tiered markets for those who are looking ahead to a possible EU oil embargo against Moscow.

The large companies Shell (LON ), BP(NYSE:), and TotalEnergies already stated that they no longer purchase cargoes and products of Russian origin. But traders and documentation show that other firms continue to trade Russian oil.

Refinitiv data has shown that the European Union heavily relies on Russian diesel. It is estimated that this accounts for approximately half its total imports as of May. However, it has not yet agreed to an embargo against Russian oil, since some member countries oppose such a move.

Even though trading Russian diesel may not be in violation of EU sanctions currently, it is possible to trade Russian fuel oil without any embargo. However, some companies have indicated that they are planning to reduce their Russian oil product purchases starting May 15.

Sources told Reuters that this is because they are trying to adhere to existing EU sanctions to restrict Russia’s access the international financial systems following Moscow’s invasion and occupation of Ukraine.

Five traders and brokers said that Russian diesel has been selling in recent weeks to Britain, France, and the Netherlands, among others destinations. The fuel was traded at a discount of about $30 per tonne relative to non-Russian fuel.

This could lead to a higher profit margin than a comparable cargo of non-Russian Diesel, according to Reuters calculations.

A bid for a non Russian diesel cargo for shipment into Le Havre port was made on the Platts trading platform at $42 per tonne, which is higher than the June ICE(NYSE:) diesel contract. Broker reports summarizing day trading indicated.

Reports show that there was an offer for a diesel cargo of unspecified origin to be delivered into Hamburg by German ports at $23 per tonne more than the June diesel contract. This is the European benchmark.

However, diesel flows from Russia into Europe have slowed markedly in recent days, with most cargoes going into the Amsterdam-Rotterdam-Antwerp refining and storage hub, one trader said, adding that the Russian diesel flows were “very opaque”.

European traders are avoiding Russian diesel which Europe heavily depends on, and the margin used to refining crude oil into diesel shot up to $50 per barrel.

(Graphic: European diesel on fire, https://graphics.reuters.com/EUROPE-DIESEL/byvrjnydbve/chart.png)

The diesel market divergence reflects a similar development in the crude market, where Russian Urals oil is traded at record discounts to other grades, Jonathan Leitch, director of regional consulting at law firm Turner, Mason & Co, said.

It is no longer a price discount. It is a discount for usability and saleability. Leitch also stated that it is the same for Russian products.

Even though trading Russian oil isn’t a violation of sanctions it does come with its own risks.

In recent weeks, authorities and port workers have prevented tankers transporting Russian oil and gas from being discharged in British or European ports.

Leitch stated that banks might also decline to finance the purchase of Russian diesel.

(Graphic: Diesel differentials, https://graphics.reuters.com/EUROPE-DIESEL/egpbkedwgvq/chart.png)