The International Energy Agency (IEA) has predicted in its latest analysis that the global diesel market will remain significantly under pressure until 2027. This analysis clearly shows that unprecedented diesel prices may continue at least until the first quarter of 2027, and this is related to various factors including conflicts in the Middle East and Ukraine.
Global Pressures on the Diesel Market
Analyses indicate that disruptions in the Strait of Hormuz, attacks on refineries in Gulf Cooperation Council countries, and Ukraine's attacks on Russian energy infrastructure have all put pressure on diesel export volumes. However, increased exports from the U.S. Gulf Coast and recently from China have partially offset the decline. Overall, global diesel and gasoil supply has decreased by about 1.7 million barrels per day.
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Additionally, demand for diesel has decreased compared to last year, although this decline has only been about 0.75 million barrels per day in the third quarter. This situation may worsen in the coming months as economic conditions for refiners outside the United States are deteriorating.
Refiner Challenges and Economic Implications
Oil prices and tanker freight costs are at very high levels, and the net cost of producing and shipping diesel is approaching undesirable levels for some refiners in Asia and Europe. The IEA predicts that if the profit margins of these refiners continue to decline, some may decide to cut production as a business decision, which would exacerbate the market for middle distillates.
Disruptions in refinery production also increase the need for suppliers to reduce inventories. According to the IEA report, global gasoil inventories have decreased by five percent since the onset of conflicts.
Given these conditions, Russian refineries are also unable to compensate for shortages in the short term due to damage from previous Ukrainian attacks, even with the White House's announcement to increase Russian diesel supply to the market.
The IEA concludes that "the balance of the gasoil market will remain under pressure until 2027 and will depend on improved supply of products from the Middle East. If this does not happen, it may be necessary to further reduce demand and the heavy economic costs that this will entail to balance the markets."
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