Global diesel markets are “exceptionally tight”, the International Energy Agency has warned, adding that EU sanctions on Russian oil that come into full force in the next three months will increase competition for limited supply.
Prices for diesel, and the relative difference to the price of crude, surged to record levels in October and are now 70 per cent and 425 per cent higher, respectively, than a year ago, according to the IEA.
“High diesel prices are fuelling inflation, adding pressure on the global economy and world oil demand,” the Paris-based IEA said.
Once an EU embargo on imports of diesel and other refined products from Russia is implemented in February the market will tighten further, it warned.
“The competition for non-Russian diesel barrels will be fierce, with EU countries having to bid cargoes from the US, Middle East and India away from their traditional buyers,” it said. “Increased refinery capacity will eventually help ease diesel tensions. However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear.”
Diesel markets were already stretched before Russia’s invasion of Ukraine because of the closure of 3.5mn barrels a day of refinery capacity since the start of the Covid-19 pandemic, the IEA said. The disruption of Russian shipments and lower than normal Chinese exports have further crimped supply just as demand for the fuel — a key engine of economic growth — has revived this year.
High diesel prices, combined with a weak Chinese economy, Europe’s energy crisis and a strong US dollar, were “weighing heavily” on consumption, it said. Global oil demand is forecast to fall by 240,000 barrels a day in the fourth quarter compared with last year, it said.
