A pile-up of Russian diesel stored on ships suggests buyers are shunning the sanctioned fuel as an exceptionally warm winter saps demand.

As many as 1.9 million barrels of Russian diesel-type fuel is currently in floating storage, the most since October 2020, according to data from Kpler Inc. compiled by Bloomberg. The build-up, three weeks after EU sanctions took effect, indicates some cargoes loaded from Russian ports without buyers. 

The surplus of cargoes represents a bullet dodged for global markets that feared the trucking and heating fuel would dry up as the result of sanctions. Fears of a shortage prompted European refiners to boost production to prepare for a winter that ended up being warmer than normal, while suppliers imported massive amounts of fuel ahead of the EU ban on Russian imports. By one measure, diesel stockpiles at the Amsterdam-Rotterdam-Antwerp hub have ballooned to the highest level in two years. 

A sustained build in Russian diesel inventories floating unsold at sea may ultimately pressure its crude processing and production rates, the profits from which are now funding a second year of war in Ukraine.

To be sure, weather conditions may be causing some difficulties in unloading, resulting in some cargoes being temporarily classified as floating storage. However, this does not appear to be the case currently off the North African coast, where some of the Russian cargoes have been lingering.

Last week, a record number of Russian diesel cargoes were sailing without a destination.