EU Import Ban on Russian Oil Products Starts Sunday
Hey Ben, what have you noticed already in terms of product flows as we head into this ban? It's good to see you. I think it's everyone again. I think your colleague, Natali, has done a very good job actually explaining what's going on. Diesel is the key product that we're going to talk about I think today. We've got this new ban that starts on Sunday the 5th of February. Today is obviously Friday evening here in Europe. We still don't have the exact details how this ban that begins on Sunday is going to operate.
We don't know what the price will be and we don't know exactly what the rules are. So a lot of what we're going to talk about is speculation, although we do have some pretty good indicators how it might work. Natali made a good point. There's still half a million miles a day of diesel coming from Russia into Europe, mainland Europe in January. This is meant to come to a halt in February. We think it will diminish. There's going likely to be a wind down period.
But come March, we're not going to have any Russian diesel coming into Europe. I think the point made about Middle Eastern refineries is a good one. You'll have China certainly producing. But we're all going to be talking about a resurgent China and let's see how much spare diesel capacity that China actually has when it comes to Europe's turn to want this in March and April as we head towards the European summer. So Ben, to this point, what is Russia going to do with its product? It's not going to like all of a sudden shut down all its refineries. They're going to want to get money for the stuff that they're producing. Where is it going to go? What are you noticing in terms of vessels, in terms of fleets, and how the globe is kind of positioning for this big shift? It's a key here because what you've had is you had the old days of Iran and Venezuela and there was a shadow fleet.
It was relatively small. It would manage the sanctioned barrels. This Russian flow is vastly different. It's huge. What you've seen, because it's been quite well telegraphed, that there were changes coming and certainly this Feb 5 date's been around for four or five months, is the building of this shadow fleet into a much larger entity. We think there's approximately 400 crude oil vessels accounting for about 20% of the world's crude oil vessels that have switched from what we would call mainstream service into the shadow fleet to ostensibly do Russian business. The same thing's happening on products.
There's approximately 200 product tankers, about 7% of the product tanker market that have shifted into this business. Now, it can cope, I think, in the early days, but you've got to remember you're taking short-haul business. Russia is only three or four days away from a number of European ports to very long-haul business. On vessels that were designed, they're smaller vessels to go short-haul. The problem that you've got here is these vessels are going to take a lot longer to return. Your average tonne miles increases, creating a pretty big problem over time. So day one will be okay, but as this plays out in the coming months, I think you could possibly see a shortage of product tankers.
Now, where does it go is the other question you asked. It'll go to the same places that people have been talking about for the past few months. I think your colleague Natalia mentioned people having workarounds and blending and so on. I think there's a lot of people talking about how they can be clever and get rid of Russian oil. But it is a vast volume that needs to find a new home. I think in the early days, maybe that's okay, but as time progresses, I think there'll be difficulties in the product's markets. Ben, what does this mean for pricing then? Europe gaining 80% of its diesel from Russia as it realises it looks to the Saudis, the Middle East and China, maybe for that diesel import.
What does it mean for pricing in the months ahead? I mean, there's been a big concern that there's going to be some sort of shortage. The market has taken its in its stride so far. There's a real belief in the current market that this will work itself out. And I guess it's the same answer as before. There are potential shortages coming forward because we're building a deep inefficiency into an oil market that has spent decades becoming incredibly efficient, very much a just-in-time industry. 100 million barrels a day comes out of the ground every day. It gets refined, delivered to consumers across the planet.
This inefficiency that we've built in will get worse over time. Inefficiencies tend to increase prices. So I would say at the moment prices aren't that bad. Crude oil has come off actually to more like $82. Some of the diesel markets had a rough week, but I suspect going forward, as these changes really come into bite, consumers are likely to see higher prices. Ben, what are you guys doing at Trafagura with the ban? Like, are you still moving Russian oil? Like, are you blending? Like, how are you dealing with it right now? Really, really very little is the answer. We're Europeans, we live in Europe, we're subject to the rules and regulations that are placed on us.
There are some very small pieces of business we've done on some what I would call booty products, obviously within the rules and regulations that are placed on us. And at the moment, honestly, we've got a group of compliance people and lawyers waiting to see what the rules are. So for now, the answer to your question is very little. We traditionally have been a large lifter of Russian oil that came to a grinding halt at the beginning of the war. And we're still waiting to see what the rules are and doing very little Russian business. Ben, I love that there are booty products in the oil and energy business. You touched on this in terms of the price trajectory.
Do we get double digit oil by the end of the year? So if you're talking about crude oil, I mean, it's maybe, let's see. The front end of the crude oil market is it's well supplied at the moment. There's not a huge problem where we're drifting into the low 80s, mid 80s, that kind of number. There's a couple of competing factors here. I really don't think OPEC Plus is going to let oil drift into the 70s for any extended period of time. So you arguably have a flaw there. We've got to remember that the US needs to refill an SPR.
They've said they'll do that in the low 70s kind of number. So you have a reasonable flaw there. But if you have a resurgent China, which I think most of the market thinks will have, they are starting to fly again domestically internationally less so. But there's huge upside on international travel from the Chinese population that I think you're going to see higher prices. I suspect as we head towards summer, you'll drift back through into the 90s and go from there. To get beyond 100, I think it's a problem. You'll need some sort of issue, shock, surprise, which honestly in the last three years we've had plenty of.
But I would frame the market at $80 to $100 absent a big change. And I think there's a reasonable flaw there for a number of reasons around 80. So the price that we have today, your risk skew is probably slightly to the upside.
Bloomberg