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UPDATE 1-Russia-Belarus dispute cuts diesel export to Europe

Published 01/17/2011, 02:03 PM
Updated 01/17/2011, 02:08 PM
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* Russia not supplying crude to Belarus since Jan 1

* Putin to meet Belarus PM later this week

* European diesel cargo diffs at more than two-year highs

(Adds detail, background)

By Emma Farge

LONDON, Jan 17 (Reuters) - Belarus has suspended diesel exports to Europe, traders told Reuters on Monday in a first sign that its dispute with Russia over crude oil pricing is beginning to have an impact on global energy markets.

Traders said a halt in Belarusian exports pushed European diesel cargo differentials to more than two-year highs and that Europe typically receives around 200,000 tonnes of diesel from Belarus a month.

"I don't see any exports. They export mainly diesel, so that has added to the market tightness," said a London-based oil products trader.

Russia suspended crude oil flows to Belarus on Jan. 1 amid a pricing dispute, although it continued exports to Germany and Poland via Belarus along the Druzhba pipeline.

Both sides have so far described the problems as technical and have pledged not to repeat the crises of previous years, when similar disputes cut Russia's entire crude exports along Druzhba, amounting to 1 million bpd or around one third of combined Polish and German consumption.

Moscow's relations with Minsk have become particularly strained in recent years after Belarusian President Alexander Lukashenko, criticised by the West for authoritarian rule, has declined to sell to Moscow some of Belarus's most lucrative firms in exchange for cheap energy supplies.

Moscow says it is not trying to use energy as a tool of intimidation of blackmail and is simply withdrawing its subsidies to neighbours after years of cheap energy supplies.

Prime Minister Vladimir Putin will meet his Belarusian counterpart Mikhail Myasnikovich on Thursday, the Russian news agencies reported, which indicated oil supplies would probably remain suspended at least until this meeting.

UKRAINE-BELARUS DEAL

Also on Monday, Ukraine and Belarus signed a two-year deal on oil transit through Ukraine's Odessa-Brody pipeline in a move likely to further upset Russia, because it would allow Belarus to import alternative crude supplies.

Under the Monday deal, Ukraine will tranship 4 million tonnes of light crude a year to the Mozyr refinery in Belarus, it said in a statement. The ministry did not say where the oil would come from.

Belarus has purchased several cargoes of Venezuelan crude through the route, which traders said made no economic sense but was meant to show that Minsk can find alternative sources of crude.

Belarus has also said it may try to buy Azeri crude through the same route.

Diesel cargo differentials in northwest Europe were at premiums of $48 a tonne to the benchmark gasoil future on the IntercontinentalExchange and the highest since September 2008, according to Reuters data.

Traders said that strong winter demand for diesel - now used widely as a heating fuel in Europe - also helped boost prices.

(Reporting by Emma Farge; Writing by Dmitry Zhdannikov, editing by Alison Birrane and Jane Baird)

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