A garbage truck tops gasoline prices above $6 per gallon and diesel prices above $8 per gallon, posted outside a Shell gas station in Carson, California, September 22, 2026.
Patrick T. Fallon | Afp | Getty Images
Constraints on the diesel market will last until next year, the International Energy Agency warned on Wednesday.
In its October oil market report, the IEA said supply would remain tight until the second half of 2027.
A counter-seasonal tightening in diesel markets in the third quarter, combined with “much larger than normal inventory declines” over the previous three months, had “deprived global diesel markets of crucial inventory coverage ahead of the peak winter demand season”, the IEA said.
Last month, global diesel exports fell by 700,000 barrels per day year-on-year, according to IEA data. A loss of 1.3 million barrels per day from Russia and the Middle East was “only partially offset by higher supply from other sources,” the agency said.
But while rising prices weakened oil demand more generally, the IEA said “relatively inelastic diesel demand remained strong”, supported by government measures to ease high prices for consumers.
“Dwindling inventories, rising cracks and deepening backwardation levels have signaled the need for additional supply,” he said. “However, even with an expected rapid recovery in refinery throughputs by the end of the year, gasoil supply is far from meeting demand in 4Q26, suggesting that 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 per 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 parallel to record levels in most major economies,” the report said. But he warned that tensions in the raw freight market meant prices of diesel delivered to major gasoil importing markets – Europe, Africa and Latin America – could rise again in the coming weeks.
Trump strikes Russian diesel deal to ease pressure on consumers
U.S. diesel prices hit $6 a gallon for the first time last month, as the war in Iran continues to impact global energy markets, with some market watchers warning that high prices could persist for months.
Last week, US President Donald Trump said he had reached an agreement with his Russian counterpart Vladimir Putin for Russia to immediately supply 300,000 tonnes of diesel to the global market, in a bid to offset the sharp rise in prices caused by supply constraints linked to the war in Iran.
Russian energy has been harshly sanctioned by Western governments since Moscow’s full-scale invasion of Ukraine in 2022.
The deal between Trump and Putin was condemned by both parties in the United States, with European lawmakers also criticizing the move. Speaking at IMF meetings in Bangkok on Wednesday, Valdis Dombrovskis, European Commissioner for Economy and Productivity, warned that “now is not the time to ease sanctions on Russia.”
“If we discuss this diesel deal specifically, it is worth noting that the volumes discussed will have no macroeconomic significance anyway and the big question mark is whether Russia is able to deliver them anyway,” he said.
Italian Prime Minister Giorgia Meloni warned Wednesday that the deal contradicted efforts to bring Putin to the negotiating table with Ukraine.
Brent crude continues to rise above $100 a barrel amid conflict-related supply disruption
Destruction of oil demand
The IEA projects that overall oil demand will decline by an average of 2.6 million barrels per day in 2026. Diesel will account for 25% of this drop in demand, the agency said.
Oil supply, meanwhile, is expected to see an average annual decline of 5.8 million barrels per day this year, before reversing to increase by 7.7 million barrels per day in 2027.
However, the IEA warned that “new attacks in the Gulf are undermining the recovery.”
Over the past week, the Saudi capital Riyadh has been the target of a series of attacks by Yemen’s Houthis, some of them resulting in deaths. On Wednesday, Saudi officials said an administrative building belonging to oil giant Saudi Aramco was targeted overnight.
The attacks on Saudi Arabia risk derailing the market recovery, the IEA said in its report, with Saudi production increases in September driving OPEC+ supply gains that month.
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