Diesel squeeze to last until 2027 as Iran war disrupts supply: IEA

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.

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…