Constraints on the diesel market will extend well into next year, the International Energy Agency warned on Wednesday.
In its October Oil Market Report, the IEA said supply would remain tight into the latter half of 2027.
A counter-seasonal tightening in gasoil markets in the third quarter, combined with "much heavier-than-normal inventory declines" in the preceding three months, had "deprived global gasoil markets of crucial stock cover ahead of the peak winter demand season," the IEA said.
Last month saw global diesel exports drop by 700,000 barrels a day year-on-year, according to IEA data. A 1.3 million barrels per day loss from Russia and the Middle East was "only partly offset by higher supply from other sources," the agency said.
But while higher prices had weakened oil demand more broadly, the IEA said "relatively price inelastic diesel demand has remained strong," supported by government measures aimed at easing high prices for consumers.
"Falling inventories, soaring cracks, and steepening levels of backwardation have signalled the need for additional supplies," it said. "However, even with a rapid recovery expected in refinery throughputs into year-end, gasoil supply falls short of meeting demand in 4Q26, suggesting that the replenishment of lost inventories, outside of typical seasonal fluctuations, is unlikely before [the second half of 2027]."
The IEA pointed out that wholesale diesel prices exceeded $200 a barrel in Singapore in mid-September and reached all-time highs of around $220 per barrel in Europe and the United States.
"Retail diesel prices have risen in tandem to record levels in most major economies," it said in its report. But it warned that tensions in the crude freight market meant delivered diesel prices in the dominant gasoil importing markets – Europe, Africa and Latin America – could rise again in the coming weeks.
Trump strikes Russian diesel deal to ease consumer squeeze
U.S. diesel prices hit $6 a gallon for the first time last month, as the Iran war continued to impact global energy markets, with some market watchers warning elevated prices could linger for months to come.
Last week, U.S. President Donald Trump said he had made a deal with Russian counterpart Vladimir Putin for Russia to immediately supply 300,000 metric tons of diesel to the global market, in a bid to offset sharp price rises sparked by Iran war-driven supply constraints.
Russian energy has been harshly sanctioned by Western governments since Moscow's full-scale invasion of Ukraine in 2022.
Trump's deal with Putin faced bipartisan condemnation in the U.S., with lawmakers in Europe also criticizing the move. Speaking at the IMF meetings in Bangkok on Wednesday, Valdis Dombrovskis, European Commissioner for the Economy and Productivity, warned "now is not a time to ease sanctions on Russia."
"If we discuss this diesel deal specifically, it's worth noting that the volumes which are being discussed are anyway not going to have any macroeconomic significance, and the big question mark if Russia is able to deliver them anyway," he said.
Italian Prime Minister Giorgia Meloni on Wednesday warned the deal contradicts efforts to get Putin to the negotiating table with Ukraine.
Oil demand destruction
The IEA forecast that overall oil demand would fall by an average of 2.6 million barrels per day in 2026. Diesel will register 25% of that demand drop, the agency said.
Oil supply, meanwhile, was forecast to post an average annual decline of 5.8 million barrels per day this year, before reversing course to rise by 7.7 million barrels per day in 2027.
However, the IEA warned that "renewed attacks in the Gulf leave the recovery fragile."
Over the past week, the Saudi capital Riyadh has come under a series of attacks by Yemen's Houthis, with some of the strikes resulting in fatalities. On Wednesday, Saudi officials said an administrative building belonging to oil giant Saudi Aramco had been targeted overnight.
Attacks on Saudi Arabia risked derailing the market recovery, the IEA said in its report, with Saudi production increases in September driving OPEC+ supply gains that month.
