Two wars. One diesel crunch. No printer

The oil industry repeatedly cautions that no matter the crisis, "You can't print barrels." In times of energy scarcity, the only way to obtain diesel is through actual production, which is proving extremely challenging amid ongoing geopolitical conflicts. The US, Iran, and Russia-Ukraine wars have combined to create a massive diesel shortage, driving prices to record highs. In the US, the retail price for diesel topped $6 per gallon last week for the first time, while the wholesale market is seeing prices above $5.

Diesel is the world's most-consumed refined petroleum product, accounting for nearly 30% of total oil demand. The trucking industry uses about half of the world's diesel output, with railway freight, construction, factories, mining, and agriculture absorbing the rest. The shortage of global refining capacity is the root cause of the problem, exacerbated by the wars and actions taken to ease the crude oil shortfall.

Russia and Persian Gulf nations were previously exporting 2.2 million barrels of diesel daily; however, this has plummeted by around 75% to 520,000 barrels in August. Russia is primarily responsible for this decline as Ukrainian attacks have damaged many of its largest refineries. Saudi Arabia, on the other hand, has significantly reduced its exporting refineries inside the Persian Gulf due to the war.

China has also played a role in worsening the diesel scarcity. As a result of the US-Iran conflict, the country has cut back on crude imports, reducing daily purchases to around 7 million barrels. This reduction in oil imports coincides with decreased refining activity, leading to a lower supply of diesel. Additionally, the US and Japan have tapped their strategic petroleum reserves, primarily containing crude oil, which has not helped alleviate the diesel shortage.

The solution to the diesel crisis lies in increasing existing refining capacity and allowing elevated prices to curb demand. However, this is a slow process since increasing refining capacity takes years. Record margins have prompted refineries to operate at maximum diesel output, but this still falls short of the 29.5 million barrels of daily diesel demand. Until the wars end and weather conditions improve, the diesel shortage is expected to persist.