International Energy: Diesel Shortage to Persist Until 2027

The International Energy Agency (IEA) said on Monday that diesel supply shortages could persist into next year as production declines in the Middle East and Russia due to conflicts, while record-high prices are prompting drawdowns from stockpiles ahead of the winter demand peak.

Diesel refining margins reached unprecedented levels of around $95 per barrel in September, as production fell sharply due to reduced refining capacity resulting from attacks on energy infrastructure linked to the wars in Iran and Ukraine.

In its latest monthly oil market report, the agency added, “Unprecedented diesel prices are already triggering wide-ranging economic repercussions by raising the cost of goods and affecting real incomes, economic activity, and inflation.”

The agency expects global refining operations to recover by the end of this year, which will help replenish stockpiles, but said this would not be enough to offset the accumulated deficit in mid-distillate markets this year. Diesel, gas oil, and jet fuel are classified as mid-distillates.

Member countries of the agency are coordinating a drawdown of 100 million barrels of oil and diesel from strategic reserves in an effort to calm prices, amid growing political and economic pressures due to the widespread use of this essential fuel in industrial, agricultural, and transportation sectors.

The agency noted that combined diesel export losses from the Middle East and Russia reached 1.3 million barrels per day in September.

It added, “Diesel markets remain under significant pressure, as prolonged supply disruptions have forced unusual stockpile drawdowns ahead of the usual seasonal maintenance period in autumn and the winter demand peak.”

The agency forecast global oil demand would fall by 2.6 million barrels per day in 2026, with 25 percent of that decline coming from diesel.

The IEA also expects global oil supply to decrease by 5.8 million barrels per day this year, before reversing course and rising by 7.7 million barrels per day in 2027, returning the market to a surplus.

Oil prices stabilized today, with Brent crude futures reaching around $105.80 per barrel by 09:32 GMT, up 0.1 percent from the previous close. Diesel refining margins rose 2 percent during the day to reach approximately $85.42 per barrel.

The pace of drawdowns from the IEA’s initial 400-million-barrel reserve release in March slowed to around 270,000 barrels per day in September, down from an average of 2.2 million barrels per day between March and June.

The agency reported that 331 million barrels had been drawn from emergency stockpiles under that agreement by the end of September, but 46 million barrels from Europe, 40 million from the Americas, and 10 million from Asia and the Oceania region had not yet been released.

Diesel accounts for more than 200 million barrels of the roughly one billion barrels of stockpiles held by IEA member countries.

These reserves serve as a buffer for the oil market against external events or price volatility, meaning that drawdowns reduce this protection against future shocks.

The agency stated in the report, “As the remaining safeguards within the system continue to erode, and with no resolution in sight for the ongoing conflicts in the Middle East, oil markets may experience further disruptions in the coming months before any surplus emerges in 2027.”

The agency said that crude oil exports from Gulf producers rose by 4.4 million barrels per day in September to about 75 percent of pre-war levels.

This was the result of a 3.7 million barrel-per-day increase in shipments through the Strait of Hormuz, reaching 10.9 million barrels per day, thanks to strong activity in ship-to-ship oil transfers in the Gulf of Oman.

The agency added, “However, the recent escalation of attacks on the region’s energy infrastructure and oil tanker movements threatens to limit further gains.”

A tender document and market participants reported today that the Kuwait Petroleum Corporation sold 85,000 tons of full-range naphtha at a premium of more than $120 per ton above standard Japanese prices for the second half of December, on a delivered ex-ship basis at the destination port.

* The tender document showed that the shipment is scheduled to be loaded between November 1 and November 11.

* A naphtha trader said that the state-owned Kuwait Petroleum Corporation awarded its previous tender of 55,000 tons for the same loading period at a premium of $70 to $75 per ton above standard Japanese prices, also on a delivered ex-ship basis at the destination port.

* This tender is the third by the Kuwait Petroleum Corporation in October, bringing total volumes sold so far this month to 175,000 tons across tenders.

The price of a barrel of Kuwaiti crude fell 88 cents to $106.07 in Tuesday trading, compared to $106.95 in Monday trading, according to the price announced by the Kuwait Petroleum Corporation.

In global markets, oil prices rose this morning after two ships were attacked in the Strait of Hormuz. Two senior Iranian officials told Reuters that Tehran is using new methods to target ships passing through the strait, in an effort to keep oil prices high and influence the U.S. midterm elections.

The two officials declined to provide details on the new strategy, but one said that Iran began using different attack tactics about 10 days ago against ships it considers to be violating its restrictions, adding that this had led to an increase in attacks on those ships.

Brianika Sachdeva, head of market statistics at Philip Nova, stated that “Iranian officials’ public acknowledgment of undermining U.S. efforts to control oil prices reveals much about the true intentions behind the so-called ‘peace talks.’”

She added, “Iran is fully aware of its geopolitical importance and the severe damage that high oil prices could inflict on the global economy, and it may not hesitate to play this card.”

The Saudi Ministry of Energy said today that the Houthis launched an attack on an administrative building belonging to the state-owned Saudi Aramco in the city of Dammam, causing a limited fire.

Hiroyuki Kikukawa, chief analyst at Nissan Securities Investment, said, “Concerns about supplies due to the conflict between the Houthis and Saudi Arabia are pushing prices higher.”

He added, “An increase in Russia’s diesel exports could ease supply shortages in the market, which may limit sharp price fluctuations up or down,” predicting that the price of U.S. West Texas Intermediate crude would range between $90 and $100 per barrel.

The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that the OPEC+ alliance recorded a sharp rise in production during September, driven by an increase in Saudi output, despite ongoing disruptions in shipments through the Strait of Hormuz resulting from the Iran war.

The Russian government stated that it sees no direct link between the agreement to export Russian diesel to the United States and peace talks with Ukraine. This comment came in response to a Reuters report stating that envoys of US President Donald Trump informed Ukrainian officials on Friday that the Russian diesel export agreement was part of an effort to bring Moscow back to negotiations on a peaceful settlement in Ukraine.