Diesel squeeze set to last well into 2027 as Iran war disrupts supply, IEA says

The International Energy Agency (IEA) predicts a global diesel shortage will persist through 2027, as tight supplies continue to hamper the crucial fuel. Supply fell by 1.7 million barrels per day in Q3 of 2026 due to restricted Middle East exports and Russia's refinery output cuts following attacks from Ukraine on its refineries.

Diesel fuels a wide range of global activities from transportation to heating, making it a vital component of the economy. The IEA reported global gasoil exports averaged 4.7 million barrels per day in the first nine months of 2026, a 10% decrease from the previous year. September saw a more than 60% drop in combined net exports from the Middle East and Russia, with relief coming only partially from increased shipments from the U.S. and China.

Refiners saw initial margins surge due to high diesel prices relative to crude, but the rising costs of tankers and crude delivery have since eaten into profitability. European refining margins fell from around $100 to nearly $60 per barrel by early October, while global diesel consumption dropped by 1.1 million barrels per day in Q2 and another 750,000 barrels per day in Q3, to 28.7 million barrels per day.

In Q3, the global gasoil market turned into an estimated deficit of about 100,000 barrels per day, compared to a surplus of 880,000 barrels a day a year earlier. The IEA foresees stock draws accelerating in October due to rising winter demand and seasonal refinery maintenance. A market rebound is expected in Q1 2027 as refinery output recovers, but without a sustained recovery in Middle Eastern product exports, further demand cuts could be necessary to rebalance the market.

The G7 economy group stated they will accelerate oil supplies agreed upon in March, prioritizing diesel deliveries. However, Russian diesel export restrictions easing alone won't significantly improve supply without resolving refinery capacity issues, and further disruptions could tighten the market more. The IEA has also lowered its outlook for global oil demand, projecting a 2.6 million barrel per day decrease to 102.4 million barrels in 2026, resuming growth only in March 2027.

Global oil supply rose by 2.5 million barrels in September, led by Gulf producers notably Saudi Arabia and the UAE, but the IEA forecasts it to fall by 5.8 million barrels in 2026. Global oil inventories dropped by 10 million barrels in September, with a 113-million-barrel drawdown in on-land stocks offset by a 103-million-barrel increase in oil on water.

For 2027, the IEA anticipates oil demand growth of 2 million barrels per day, while supply is expected to rebound by 7.7 million barrels per day. OPEC and its allies are expected to contribute 5 million barrels a day to the increase, while non-OPEC producers will add another 2.7 million barrels per day. The IEA highlights that Middle East crude exports rebounded sharply in September, reaching over 75% of prewar levels, but the recovery is fragile due to renewed attacks on energy infrastructure and tanker traffic. These disruptions raise delivery costs and compress refinery margins.