New Delhi: The global diesel market is under severe pressure, with supply disruptions and high prices starting to weigh on oil consumption, the International Energy Agency (IEA) said in its October Oil Market Report released Wednesday.
The global oil demand is expected to fall by 2.6 million barrels per day (mb/d) in 2026 as the Iran war and a weaker economic outlook impact consumption.
Diesel markets are under severe pressure due to supply disruptions from West Asia and Russia, which have forced inventory draws ahead of the Northern Hemisphere winter, when demand typically rises.
The IEA expects global oil demand to fall by 2.5 mb/d year-on-year in the fourth quarter of 2026, with diesel accounting for around a quarter of the decline. Overall oil demand had already contracted by 5 mb/d and 3.7 mb/d in the second and third quarters, respectively.
“Diesel markets remained under significant strain,” the IEA said, as prolonged supply disruptions forced stock draws ahead of autumn refinery maintenance and peak winter demand.
Global diesel exports fell by nearly 700,000 barrels per day year-on-year in September. The loss of 1.3 mb/d of exports from Russia and West Asia was only partly offset by higher supplies from the US and China.
The agency expects the pressure to persist despite a recovery in refinery output towards the end of the year.
“Gasoil [diesel] supply falls short of meeting demand in 4Q26,” it said, adding that replenishment of inventories lost during the crisis is unlikely to recover before the second half of 2027.
Supply recovery remains fragile
The diesel squeeze comes as the wider global oil market is also running down its stock buffers.
Global oil inventories (publicly tracked stockpiles) fell by 10 million barrels in September. A 113-million-barrel decline in on-land stocks was only partly offset by a 103-million-barrel increase in oil held on water as Gulf exports recovered.
By the end of September, global observed inventories were 509 million barrels below the pre-war level at the end of February. On-land stocks are also at their lowest levels since at least 2016.
Non-Organisation for Economic Co-operation and Development (Non-OECD) countries crude inventories fell by 76 million barrels in September, with China accounting for 78 percent of the decline. Inventories of OECD countries fell by another 37 million barrels.
According to the IEA, the declining oil stock cushion could leave markets more vulnerable to further disruptions. “As the remaining buffers in the system continue to erode,” it said, oil markets could face “more turmoil in the months ahead” if conflicts in West Asia continue.
There’s some hope. A sharp recovery in crude supply from the Gulf has occurred. Global oil supply grew by 2.5 mb/d month-on-month in September to 102.3 mb/d, led by a 2.1 mb/d increase from OPEC+ (Organization of the Petroleum Exporting Countries) producers, particularly Saudi Arabia.
Gulf crude exports surged by 4.4 mb/d to 13.9 mb/d in September, reaching more than 75 percent of pre-war levels. Flows through the Strait of Hormuz increased by 3.7 mb/d to 10.9 mb/d, while exports bypassing the waterway rose by 970,000 barrels per day to reach 5.6 mb/d.
But the recovery is increasingly threatened by renewed attacks on energy infrastructure and tanker traffic. “Renewed attacks in the Gulf leave the recovery fragile,” the IEA said.
The renewed risks have also pushed up oil and freight costs. North Sea Dated crude rose by $26.17 a barrel month-on-month in September to $116.89 a barrel and was trading around $134 a barrel at the time of the report. Brent futures have risen 13 percent since the beginning of September to around $107 a barrel.
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Shortage may last well into 2027
Diesel prices have already risen to record levels in several major markets. Wholesale prices exceeded $200 a barrel in Singapore in mid-September and reached around $220 a barrel in Europe and the US.
“Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation,” the IEA said.
Global gasoil production fell by 1.5 mb/d year-on-year in the second quarter and by an estimated 1.7 mb/d in the third quarter. Lower refinery activity in Asia following the loss of crude flows through Hormuz and lower Russian production amid refinery damage from Ukrainian drone attacks have contributed to the shortage.
That has led to global gasoil exports averaging 4.7 mb/d during the first nine months of 2026, 10 percent below last year. Net exports from West Asia and Russia fell by more than 60 percent year-on-year in September.
The IEA expects global diesel demand to contract by another 1 mb/d year-on-year in the fourth quarter as high prices and weaker economic activity curb consumption.
However, the diesel market is expected to remain tight even as refinery output recovers. Higher production should push the market into surplus in the first quarter of 2027, but this is unlikely to be enough to rebuild the inventories lost during 2026.
The IEA expects global oil demand to recover by 2 mb/d in 2027. Even then, demand would remain 620,000 barrels per day or 0.6 percent below 2025 levels.
The agency said the outlook remains dependent on the recovery of West Asia product supplies. If those supplies do not return, further demand reductions may be needed to balance the market, it projected.
(Edited by Tony Rai)
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