Global diesel deficit will last into 2027 amid Middle East war, IEA says

A worldwide deficit of diesel sparked by conflict in Iran will stretch deep into next year, with drained stockpiles unlikely to rebound before the second half of 2027, according to the International Energy Agency.

The Paris-based organization warned in its latest monthly assessment that supplies of gas oil, which includes diesel and heating oil, will lag behind demand during the final quarter of the year. While refineries are expected to lift production toward the end of the year, the agency cautioned that if refined product exports from the Middle East fail to recover, further demand reductions carrying significant economic costs could become necessary to balance markets.

Wholesale diesel prices reached unprecedented peaks last month, hitting roughly $220 per barrel across Europe and the United States, while exceeding $200 per barrel in Singapore. Although prices have moderated slightly, they remain nearly double crude benchmarks and levels seen before the conflict. In the United States, retail diesel surpassed $6 per gallon for the first time in September, marking an increase of about 70 per cent since the war began.

The global crunch follows major supply disruptions from primary exporters. Combined net gas oil shipments from Russia and the Middle East fell by more than 60 per cent year-on-year to 820,000 barrels per day last month, representing a decline of 1.3 million barrels per day. Routes out of the Gulf continue to face severe restrictions, and Ukrainian drone strikes have inflicted damage on Russian refining facilities. Increased exports originating from China and the United States have not made up for the shortfall.

Storage levels provide minimal cushion as winter approaches. American diesel reserves finished September at a 14-year low for the season, while European commercial gas oil stocks dropped to a 25-year low in July. Group of Seven leaders committed on October 2 to speed up the release of emergency reserves coordinated by the IEA, focusing on diesel. Out of an initial 400 million barrels pledged in March, roughly 96 million barrels still await release.

Although the agency anticipates that greater refinery processing will produce a seasonal surplus in the diesel market early next year, it said this will not be enough to restore depleted reserves.

Crude shipments from the Gulf showed some recovery last month, climbing by 4.4 million barrels per day to reach 13.9 million barrels per day, representing more than three quarters of prewar levels. Flow through the Strait of Hormuz reached 10.9 million barrels per day, aided by ship-to-ship transfers in the Gulf of Oman. However, exports of refined products and liquefied petroleum gas have rebounded at a much slower pace, remaining below half their prewar volumes.

The IEA emphasized that stability remains tenuous after the September 11 bombing of the East-West Pipeline in Saudi Arabia, alongside ongoing Houthi strikes against regional energy infrastructure and commercial vessels. At the time of the report, North Sea Dated crude hovered near $134 per barrel amid high shipping rates and supply worries, with worldwide oil stockpiles trailing prewar figures by 509 million barrels.

Reflecting these pressures, the agency lowered its 2027 oil consumption projection by 630,000 barrels per day and reduced its global economic growth estimate by 0.4 percentage points to 3 per cent. Overall oil demand is projected to drop by 2.6 million barrels per day in 2026 to 102.4 million barrels per day, with diesel representing roughly one quarter of that contraction. Global production for 2026 is expected to settle at 100.7 million barrels per day before rising by 7.7 million barrels per day in 2027.