The global diesel shortage triggered by the Iran war is set to persist well into next year, with depleted inventories unlikely to recover until the second half of 2027, the International Energy Agency warned on Wednesday.
Supplies of gas oil, which contains diesel and heating oil, will fall short of demand in the fourth quarter, even as refineries increase output towards the yea's end, the Paris-based agency said in its monthly oil market report.
Without a recovery in refined-product exports from the Middle East, further cuts in consumption and the “heavy economic costs these will entail” may be needed to balance the market, it warned.
Wholesale diesel prices surged to record highs of about $220 a barrel in Europe and the US last month and exceeded $200 in Singapore. Prices have since eased but remain nearly double crude benchmarks and prewar levels.
US diesel pump prices topped $6 a gallon for the first time in September, up about 70 per cent since the Iran war began, the IEA said.
The shortage reflects a sharp decline in shipments from two major suppliers. Combined net gas oil exports from the Middle East and Russia plunged more than 60 per cent annually to 820,000 barrels per day last month, a loss of 1.3 million bpd.
Gulf export routes remain constrained, while Ukrainian drone strikes have damaged Russian oil refineries. Higher shipments from the US and China have failed to offset the losses.
Inventories offer little relief ahead of winter. US diesel stocks ended September at a 14-year seasonal low, while European commercial gas oil inventories fell to a 25-year low in July.
On October 2, G7 leaders pledged to accelerate the IEA's co-ordinated emergency stock release, prioritising diesel supplies. About 96 million barrels of the 400 million pledged in March have yet to be released.
The IEA expects higher refinery output to return the diesel market to a seasonal surplus by early next year but said the recovery would be insufficient to replenish inventories depleted during the conflict.
Gulf rebound
Gulf crude exports rebounded sharply last month, rising by 4.4 million bpd to 13.9 million bpd, more than three quarters of prewar levels.
Oil flows through the Strait of Hormuz climbed to 10.9 million bpd, supported by increased ship-to-ship transfers in the Gulf of Oman.
However, refined products and liquefied petroleum gas shipments have recovered much more slowly, remaining below half their prewar volumes.
The IEA warned that the recovery remains fragile following the bombing of Saudi Arabia's East-West Pipeline on September 11 and an escalation in Houthi attacks on regional energy infrastructure and shipping throughout this month.
North Sea Dated crude, a physical oil benchmark, was trading near $134 a barrel when the report was prepared, reflecting mounting supply risks and record freight costs.
Global observed oil inventories stood 509 million barrels below prewar levels at the end of September, leaving markets increasingly exposed to more disruption.
Demand outlook cut
The IEA cut its 2027 oil demand forecast by 630,000 bpd and downgraded its global economic growth outlook by 0.4 percentage points to 3 per cent, as central banks raise interest rates to contain war-driven inflation.
Global oil consumption is now expected to rebound by two million bpd next year, but remain 620,000 bpd below 2025 levels.
For 2026, demand is forecast to fall by 2.6 million bpd to 102.4 million bpd, with diesel accounting for about a quarter of the decline.
The agency also trimmed its global supply forecast for this year by 60,000 bpd to 100.7 million bpd, a decline of 5.8 million bpd from 2025.
Output is projected to rebound by 7.7 million bpd in 2027, although recovery remains vulnerable to renewed disruption in the Gulf.
