Global diesel shortages could persist well into 2027, IEA says

By Robert Harvey

LONDON, Oct 14 (Reuters) - Global diesel markets could remain tight well into next year, with resulting high prices driving inflation and hurting economic growth, as conflicts curb output from the Middle East and Russia, the International Energy Agency said on Wednesday.

The agency's warning comes on the eve of a meeting that will discuss the scale and timing of releases from the agency's emergency stocks aimed at calming energy markets.

Diesel is used widely in industry, agriculture, and motoring, meaning its record-high prices have created both political and economic pressure. US President Donald Trump's administration has told European Union countries to draw down inventories or face a potential US diesel export ban.

"Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation," the agency, which advises industrialised countries and manages their emergency oil stocks, said in a monthly report.

Combined losses of diesel exports from the Middle East and Russia totalled 1.3 million barrels per day in September, the agency said. That represents about 4.5% of the global diesel and gas oil demand the agency forecasts for this year.

The diesel market remained under significant strain as the prolonged supply disruptions have caused inventories to be drawn down at a time of year when they usually rise, the IEA said.

"As the remaining buffers in the system continue to erode, in the absence of a resolution to the conflicts in the Middle East, oil markets may experience more turmoil in the months ahead before any eventual surplus emerges in 2027," the IEA said.

REFINING RECOVERY WON'T OFFSET DEFICIT

A recovery in global refinery operations expected towards the end of this year should start to replenish stocks, the IEA said, although this will be insufficient to offset the deficit accumulated in middle distillates markets. Diesel, gasoil and jet fuel all fall under the middle distillates category.

The global gasoil supply and demand balance will remain tight in the first half of 2027, and ease in the second half, the IEA report showed.

Diesel refining margins, the fuel's premium to underlying crude oil, soared to record highs of almost $95 per barrel in September, as reduced refining capacity hit production.

IEA members agreed a 400 million-barrel release of oil from emergency reserves in March to counter shortages, with total pledges later raised to 426 million barrels, of which about 100 million barrels is still to come. The agency's governing board meets on Thursday to agree the details of the move, and market participants are focusing on the pace of the release and whether fresh volumes will be agreed.

Overall global oil demand is forecast to fall by 2.6 million bpd in 2026, compared with a 2.5 million bpd decline expected last month, with diesel accounting for 25% of that drop, the IEA said.

The agency predicts global oil supply will fall by 5.8 million bpd this year, before reversing course to rise by 7.7 million bpd in 2027 to tip the market back into surplus.

Oil prices were little changed on Wednesday, with Brent futures trading at around $105.80 per barrel at 0932 GMT, up 0.1% from the previous close. Diesel refining margins were up 2% on the day at around $85.42 per barrel.

STOCK RELEASES HAVE SLOWED

The pace of reserve releases agreed in March slowed to around 270,000 bpd in September, falling from an average rate of 2.2 million bpd over March-June.

A total of 331 million barrels of the emergency stocks from that agreement had been released by the end of September, the IEA said, with Europe yet to release 46 million barrels, the Americas 40 million, and Asia-Oceania the remaining 10 million.

Of the 1 billion barrels or so in government stocks that IEA member countries hold, more than 200 million barrels are diesel.

Stocks serve as the oil market's buffer from external events or price shocks, meaning that reserve draws are leaving less protection from future shocks.

RECENT ATTACKS THREATEN MIDDLE EAST RECOVERY

Crude oil exports from Middle East Gulf producers rose by 4.4 million bpd in September to around 75% of pre-war levels, the IEA said.

A 3.7 million bpd rise in shipments through the Strait of Hormuz drove the increase, lifting flows to 10.9 million bpd, due to robust ship-to-ship transfer activity in the Gulf of Oman.

"However, the recent escalation in attacks on regional energy infrastructure and tanker traffic is threatening to derail further gains," the IEA said.

(Reporting by Robert Harvey in London. Editing by Tomasz Janowski, Mark Potter and Alex Lawler)