Trump's Russian diesel deal unlikely to lower US prices, analysts say

US President Donald Trump's declaration of an energy ceasefire between Russia and Ukraine is unlikely to significantly reduce diesel prices ahead of the November midterm elections, according to market analysts. The announcement, made on Sunday, initially caused oil prices to fall on Monday, although they later rose after Russia struck a power plant shortly after the statement.

Trump outlined a multi-stage plan for Russia to release 300,000 metric tons of diesel to the US and global markets immediately, followed by 500,000 tons in November and 1 million tons thereafter. He stated that Moscow would deliver an additional 3 million tons based on the condition of Russian refineries. The US Treasury has issued a temporary license easing sanctions on Russian diesel to facilitate the deal announced Friday. Trump has sought to tame inflation ahead of the congressional midterms, where his Republican Party risks losing control of both houses. Pew Research Center data indicates that 84% of registered voters consider the economy very important to their vote.

Diesel prices reached a record high average of $6.5276 a gallon in late September, driven by supply disruptions from the wars in Ukraine and the Middle East. Mohit Kumar, chief European economist at Jefferies, noted that while the deal explores avenues to bring down prices, it faces opposition from within the US and from European leaders due to its bypassing of Russian sanctions. Kumar added that while increased supply would ease some pressure, the agreed volumes are unlikely to make a substantial difference.

Lombard Odier analysts described the agreement as potentially significant because diesel shortages have amplified inflationary consequences in transportation, agriculture, and industrial production. However, they cautioned that announced shipments do not equate to delivered supply, and neither the US-Russia deal nor Chinese plans to resume refined-fuel exports immediately restore damaged infrastructure or normalize maritime transportation.

Neil Atkinson, former head of the Oil Division at the International Energy Agency, expressed skepticism about the deal's impact. He told CNBC that the source of the volumes is unclear unless they come from domestic supply, which would cripple the Russian economy. Atkinson pointed out that a recent G7 authorization to release 50 million barrels of oil products has made almost zero difference to market tightness due to a lack of clarity on timing and location. He noted that even if the initial 300,000 metric tons were available immediately, it would have little impact given that the US uses 3.7 million barrels of diesel daily and holds 105 million barrels of commercial stocks. Furthermore, pre-war Middle East Gulf exports of nearly 1 million barrels per day remain largely lost due to refinery damage and shipping difficulties.

Analysts at Singapore's Quantum Strategy outlined a pessimistic outlook in a note to clients. They expect the deal to fail economically and stated they remain long distillates and crude while short US assets. The firm expects Russian President Vladimir Putin to view the deal as an invitation to escalate gray-zone warfare in Europe, which they believe would be negative for the Euro and EU sovereign debt as European powers scramble to ensure their defense.