Diesel markets have remained under significant strain with prolonged export disruptions and not much off all-time high prices, mostly due to the conflicts in the Middle East. The International Energy Agency expects a rise in global oil supply, but also fuel demand destruction, to push diesel and its broader gasoil segment into a surplus in the first quarter of 2027. The lost inventories are unlikely to be replenished, though, before the second half of next year.
World oil demand is forecast to fall by 2.5 million barrels per day in year-on-year terms in the current quarter, and 2.6 million barrels per day in 2026 overall, the International Energy Agency said in its monthly Oil Market Report. As the Iran war manifests itself through restricted product availability, soaring fuel prices and a deteriorating economic outlook, diesel would account for a quarter of the drop.
A partial recovery, of two million barrels per day, leaves 2027 global oil use at 620,000 barrels per day, or 0.6%, below 2025 levels, according to the update.
For context, when crude is fully processed, gasoline accounts for 43.4% of the volume, the share of gasoil (diesel and distillate fuel) is 28.1%, and the kerosene segment makes up 9.4%. Gasoil, the workhorse of the global economy, is currently scarce on a global scale. It fuels maritime transportation, trucks, trains, farming equipment and factories. With Ukraine’s drone attacks on refineries in Russia, the shortage has become extreme.
Oil supply tentatively projected to bounce back by 7.7 million barrels per day in 2027
Global oil supply increased by 2.5 million barrels per day in September alone to 102.3 million, driven by Gulf producers. Oil supply is projected for an annual decline of 5.8 million barels per day to 100.7 million this year, before rising by 7.7 million barrels per day in 2027.
Renewed attacks in the Gulf leave the recovery fragile, the report’s authors warned. The September 11 bombing of the East-West Pipeline (Petroline) in Saudi Arabia and an exponential rise in freight rates compounded the oil price rally.
Renewed attacks in the Gulf leave the expected oil market recovery fragile
Global refinery runs are seen dropping 2.3 million barrels per day to 81.7 million per day this year, and rise by 2.8 million barrels per day in 2027. Diesel markets remained under significant strain as prolonged supply disruptions forced counter-seasonal stock draws ahead of autumn refinery maintenance and peak winter demand.
Refined product and liquefied petroleum gas (LPG) shipments from the Middle East have risen much more slowly than crude oil flows and remain below half of their pre-war levels.
Continued disruptions to Middle East exports, compounded by lower supply from Russia and some Asian countries, cut global diesel and gasoil availability by 1.5 million barrels per day in the second quarter and 1.7 million in the third on an annual basis, putting diesel markets under extreme pressure.
While global diesel prices have eased from the all-time highs of more than USD 200 per barrel reached in September, benchmarks remain nearly double the price of crude oil and their pre-crisis levels. Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation, IEA pointed out.
Global oil inventories were a steep 509 million barrels below pre-war levels late last month.
Gasoil market tightness set to extend into 2027
Gasoil markets lack the crucial stock cover ahead of the peak winter demand season, the document adds. Higher prices have weakened demand as consumers deferred price-sensitive heating oil purchases. Conversely, relatively price-inelastic diesel demand has remained strong, supported by government measures aimed at easing the impact of high prices on consumers.
Higher global refinery output will return the gasoil market, including diesel, to a surplus in the first three months of next years, the IEA forecasted. However, it would be insufficient to offset the accumulated deficit in inventories, at least before the second half of next year.
Notably, the Kremlin struck a deal with the United States last week that Russia would release some 4.8 million metric tons (almost 36 million barrels) of diesel to the world market, starting with 300,000 metric tons and, in November, 500,000 metric tons.