The diesel market is heading into the northern winter with less cover than at any point since the aftermath of the 2022 energy crisis, and it will stay tight well into next year. That is the central finding of the International Energy Agency’s October Oil Market Report, published Wednesday, which says gasoil supply will fall short of demand in the fourth quarter even if refinery runs recover quickly toward year end, and that the stock deficit built up during 2026 will not be made good before the second half of 2027.
The squeeze is a supply story. Disruptions to Middle Eastern refining and exports since the start of the conflict, the loss of Hormuz crude flows that cut refinery runs across Asia, and falling Russian output as Ukrainian drone strikes damage refineries have together taken global gasoil production down by about 1.7 million barrels a day year on year in the third quarter, to 27.2 million barrels a day. Exports averaged 4.7 million barrels a day over the first nine months of the year, a tenth below year earlier levels, and combined net exports from the Middle East and Russia dropped to 820,000 barrels a day in September, down more than 60 percent on the year. Higher American and Chinese exports offset only part of that loss.
Demand has bent but not broken. Deliveries fell 750,000 barrels a day year on year in the third quarter to 28.7 million barrels a day, with heating oil purchases deferred at high prices and consumption outside transport down sharply in the OECD, while core diesel use proved much stickier, falling only 2 percent in the five months to July. The agency expects the year on year contraction to widen to 1 million barrels a day in the fourth quarter, helped by governments shielding consumers, but notes that heating tanks still have to be filled before winter. Wholesale diesel passed $200 a barrel in Singapore in mid September and reached all time highs near $220 a barrel in Europe and the United States, and OECD gasoil stocks drew down against the season to 565 million barrels in July, 5 percent below pre conflict levels and the lowest since November 2023.
The report is pointed on the two fixes most often proposed in Washington and Brussels. The recently announced easing of Russian diesel export restrictions, it says, is unlikely to change the global balance materially, because Russia’s constraint is damaged refinery capacity rather than export rules, an assessment that lands in the middle of the congressional fight over the administration’s Russian diesel deal. And while higher refinery output should return the market to surplus in the first quarter of 2027, the agency stresses that this will not offset the deficit accumulated during 2026, leaving the balance dependent on a recovery in Middle East product supply. The G7’s October 2 commitment to accelerate deliveries under the IEA collective action agreed in March, with diesel the priority, is the main policy lever already in motion.