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Hello Power Up readers,

The whirlwind of (mostly) U.S. President Donald Trump-driven headlines continues, and the energy market is struggling to keep up.

Trump and Chinese President Xi Jinping held their first face-to-face talks since 2019 in South Korea on Thursday, agreeing on a few mutual steps to lower trade tensions, including lowering U.S. tariffs on Chinese goods to 47% from 57% and pausing China’s rare earths export curbs. Though Trump branded the meeting as “amazing”, many issues between Washington and Beijing remain unresolved.

The momentous summit came on the heels of both an agreement between the United States and South Korea on a long-awaited trade deal and news that Trump had ordered the Pentagon to immediately resume testing U.S. nuclear weapons.

That’s quite a lot to digest in the space of a few days. Brent oil prices thus have remained fairly stable, dipping less than 1% on Thursday to around $64.50 a barrel.

Energy markets continue to weigh the impact of Trump’s first sanctions on Russia since he returned to the White House in January. He targeted Russia’s top two oil companies Rosneft and Lukoil, which sent buyers of Russian crude, particularly those in India, scrambling to find alternative supplies. The sanctions have also turbocharged global diesel prices, but that spike might not last long. More on this below.

Here are a few other headlines:

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A new wave of Western sanctions on Russia’s oil industry has roiled the diesel market, sending refining margins soaring, but global supplies are unlikely to be severely disrupted for long.

U.S. President Donald Trump last week sanctioned Russia's two largest oil companies, Rosneft and Lukoil, following a similar move by Britain. These are Trump’s first punitive measures against Moscow over its full-scale invasion of Ukraine in 2022.

Russia is the world's third-largest exporter of crude oil and the second-biggest diesel exporter, shipping over 800,000 barrels per day of the transport fuel so far this year, around 3% of global demand.

The U.S. measures are exacerbating existing turmoil in the diesel market sparked by the European Union’s adoption earlier this month of a new sanctions package that includes a ban on imports of fuels produced from Russian crude. This ban, which takes effect in January 2026, closes a loophole that primarily benefited refiners in India and Turkey.

In combination, the EU and U.S. sanctions are forcing traders to scramble to find alternative sources of supply, particularly for Europe, the world’s largest diesel-importing region.

As a result, profit margins for processing crude oil into diesel have surged by nearly 20% over the past week to around $29 a barrel, the highest since February 2024, according to LSEG data.

But if recent history is any guide, this price spike is unlikely to last.

Rosneft and Lukoil have exported an average of 182,000 bpd and 138,000 bpd of diesel, respectively, so far this year, collectively accounting for 39% of total Russian exports, according to shipping analytics firm Kpler.

Turkey is the largest buyer of Russian diesel, responsible for 36% of its seaborne exports, followed by Brazil at 18%.

While large companies in Turkey, Brazil and other countries may reduce imports of Russian diesel to avoid violating sanctions, many local importers with no exposure to U.S. financial institutions will continue purchasing Russian diesel.

In the meantime, refiners around the world are apt to quickly respond to the surge in diesel prices by adjusting operations to maximize diesel output, for example by using different crude feedstocks, further mitigating any supply concerns.

NON-RUSSIAN DIET

The U.S. and EU restrictions will nevertheless have a heavy impact on India, which is the top buyer of Russian seaborne crude as well as a major exporter of diesel to Europe since the bloc stopped importing Russian diesel in 2023.

India has exported 583,000 bpd of diesel so far this year, around 8% of global seaborne volumes, of which 106,000 bpd went to Europe, making India the region’s fourth-largest overseas source of diesel, according to Kpler data.

In the face of Western sanctions pressure, Indian refineries have started to rapidly replace Russian Urals crude, which produces high diesel yields.

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