Diesel supply squeeze may persist well into 2027, IEA warns

Supply disruptions leave the diesel market with thinner buffers

The global diesel market became more strained than usual in the third quarter of 2026, according to the IEA. Ongoing supply disruptions in the Middle East and Russia forced market participants to draw more heavily on existing stocks. Inventories had already declined significantly faster than usual during the second quarter.

Additional exports from the United States and China have so far failed to offset fully the lost volumes from the Middle East, Russia and parts of Asia. As a result, the market is entering the high-demand winter season in the Northern Hemisphere with smaller reserves available.

Unusually large inventory drawdowns over two consecutive quarters have significantly weakened supply buffers. Any further disruption at refineries or in international trade could therefore have an immediate impact on diesel availability and prices.

More refinery output will not close the gap yet

The IEA does not expect conditions to improve quickly. Crude throughput at refineries is likely to rise sharply again by the end of the year, but global supplies of diesel and other middle distillates are still expected to fall short of demand in the fourth quarter of 2026.

Market pricing also points to persistent scarcity. Refining margins for diesel and gasoil have increased, while backwardation has become more pronounced. In other words, fuel available for prompt delivery is commanding a higher price than supplies scheduled for later dates. This highlights the market’s strong preference for fuel that can be delivered immediately.

The agency believes a sustained rebuilding of depleted inventories will not be possible before the second half of 2027 at the earliest. Normal seasonal changes in stock levels should not be mistaken for a lasting improvement in supply conditions.

Diesel demand remains resilient despite high prices

Higher fuel prices have so far had only a limited effect on diesel consumption. Consumers may postpone heating-oil purchases when costs rise, but demand for diesel is proving far less sensitive to price increases.

Government measures aimed at cushioning the impact of high energy prices are also supporting demand, the IEA says. In commercial road freight, fuel consumption is difficult to reduce quickly without cutting transport services.

For freight forwarders and carriers, this means continued cost pressure. Rising diesel prices increase operating expenses and make transport quotations more difficult to calculate. Companies that cannot pass higher costs on to customers immediately, or can do so only with a delay through fuel surcharges, face further pressure on their margins.

Europe faces further diesel price risks

The IEA sees additional price risks, particularly in international import markets. Alongside the tight supply situation, conditions in the crude oil freight market have also deteriorated. Higher shipping costs could make diesel procurement more expensive.

The agency therefore expects delivered diesel prices in Europe, Africa and Latin America to rise further in the coming weeks. For European transport companies, fuel prices remain a major planning and budgeting risk.

Expensive diesel also increases the cost of transporting goods and providing services. The impact extends beyond logistics, putting pressure on household purchasing power and broader economic activity.

G7 countries seek faster release of diesel reserves

With fuel prices high and supply under pressure, G7 countries want strategic oil reserves to be released more quickly, with diesel given priority wherever possible. The IEA’s Governing Board is due to discuss the practical implementation on Thursday, 15 October 2026.

Additional stock releases could provide short-term relief for the market. Their impact on prices will depend on how much fuel is released and how quickly it reaches consumers and businesses.

Easing Russian export restrictions is unlikely to bring much relief

The easing of restrictions on Russian diesel exports announced by US President Donald Trump is unlikely to significantly improve global supply, according to the IEA.

The main constraint is Russia’s refinery capacity. Repeated Ukrainian drone attacks have damaged numerous facilities and reduced the country’s ability to process crude oil. Until that capacity is restored, Russia will have limited scope to increase diesel exports, even if trade restrictions are relaxed.

The diesel market is therefore likely to remain vulnerable to further supply disruptions in the months ahead. The IEA does expect higher refinery output to create a temporary supply surplus in the first quarter of 2027. However, that increase is unlikely to make up for the deficits recorded during 2026. A lasting improvement will depend largely on whether fuel supplies from the Middle East recover.