Global diesel markets could remain tight well into 2027 as conflicts in the Middle East and Russia constrain supplies, refinery disruptions erode inventories, and record-high prices intensify pressure on businesses and consumers ahead of peak winter demand, the International Energy Agency (IEA) warned on Wednesday.
The agency said a recovery in refinery operations towards the end of 2026 would help replenish global fuel stocks but would not be sufficient to compensate for the supply deficit accumulated during the year. The outlook points to a prolonged period of pressure on a fuel essential to freight transportation, agriculture, industrial production and other economic activities, with implications for inflation, business costs and household purchasing power.
Diesel refining margins, which measure the premium refiners earn from processing crude oil into diesel, surged to nearly $95 per barrel in September, reaching a record as attacks on energy infrastructure linked to the Iran and Ukraine wars disrupted production. The margins subsequently stood at around $85.42 per barrel on Wednesday, up 2% on the day, while Brent crude futures traded at approximately $105.80 per barrel at 0932 GMT, up 0.1% from the previous close.
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The divergence between crude prices and diesel refining margins underpins the extent to which the market’s problem extends beyond the availability of crude oil. Even when crude supplies improve, shortages of refining capacity and disruptions to the production and export of middle distillates can keep diesel prices elevated.
“Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity, and inflation,” the IEA said in its monthly oil market report.
The warning comes as governments face pressure to contain fuel costs while preserving emergency reserves that may be needed if supply disruptions deepen. Although coordinated releases from strategic stocks have helped bring additional oil and diesel into the market, the pace of those releases has slowed considerably, leaving less immediate protection against another major shock.
Refinery Recovery May Not Close the Supply Gap
The IEA expects global refinery operations to recover towards the end of the year, providing some relief to markets and allowing inventories to begin rebuilding. However, the agency said the improvement would not erase the deficit accumulated in middle distillates markets during 2026.
Middle distillates include diesel, gasoil and jet fuel. These products are important to the real economy because they power trucks, agricultural machinery, industrial equipment and aircraft. Their availability therefore affects not only energy markets but also the cost and reliability of moving goods and operating businesses.
The pressure on diesel supplies has been intensified by declining exports from two important supply sources. Combined losses of diesel exports from the Middle East and Russia reached 1.3 million barrels per day in September, according to the IEA.
The agency said prolonged disruptions had forced markets to draw down inventories at a time when stocks would ordinarily be building ahead of autumn refinery maintenance and peak winter demand.
“Diesel markets remained under significant strain as prolonged supply disruptions forced counter-seasonal stock draws ahead of autumn refinery maintenance and peak winter demand,” the IEA said.
Refinery maintenance can temporarily reduce the volume of fuel available to the market, while colder weather increases demand for heating-related fuels in some regions. When these pressures coincide with geopolitical disruptions and reduced inventories, markets have less capacity to absorb unexpected supply losses.
For businesses, sustained diesel prices can feed through several cost channels. Higher freight charges increase the expense of transporting raw materials and finished goods, while farmers and industrial operators face higher operating costs. Companies may pass some of these increases to customers, adding to inflationary pressure, or absorb them through lower profit margins.
The consequences are especially difficult when high fuel costs coincide with weaker economic activity. Consumers face reduced purchasing power, while businesses must manage more expensive inputs without necessarily having the ability to raise prices sufficiently to preserve profitability.
The IEA expects global oil demand to decline by 2.6 million barrels per day in 2026, with diesel accounting for 25% of that reduction. The forecast suggests that high prices and broader market pressures are already weighing on consumption, although the decline in overall oil demand does not necessarily mean diesel shortages will disappear. Demand can weaken while regional imbalances and constraints on refining capacity continue to keep particular fuels expensive.
The agency forecasts that global oil supply will fall by 5.8 million barrels per day this year before rising by 7.7 million barrels per day in 2027. If that projected recovery materializes, the market could return to surplus next year.
However, the prospect of a future surplus offers limited immediate relief to consumers and businesses facing elevated diesel costs now. The timing of additional supply, the recovery of refining capacity and the course of the conflicts will determine how quickly current shortages ease.
Emergency Reserves Are Shrinking as Supply Risks Persist
Governments have been releasing emergency stocks to ease market pressure. IEA member countries are coordinating the release of 100 million barrels of oil and diesel from emergency reserves amid mounting political and economic concerns over fuel prices.
That initiative follows a larger coordinated release announced in March, when member countries agreed to make 400 million barrels available to the market. By the end of September, 331 million barrels from that agreement had been released, the IEA said.
The pace of the releases has slowed sharply. Supplies from the programme averaged 2.2 million barrels per day between March and June but fell to approximately 270,000 barrels per day in September.
The remaining volumes include 46 million barrels yet to be released by Europe, 40 million barrels in the Americas and 10 million barrels in Asia-Oceania, according to the agency.
IEA member countries hold around 1 billion barrels in government stocks, of which more than 200 million barrels comprise diesel. These reserves provide a buffer against unexpected disruptions, but drawing them down reduces the volume available to respond to future emergencies.
Emergency stocks can bridge temporary supply gaps, but they cannot permanently replace disrupted production and exports. Thus, if geopolitical risks persist, governments may face a difficult choice between releasing more reserves to contain prices in the short term and preserving sufficient inventories to protect against a more severe disruption later.
The IEA warned that diminishing buffers could leave oil markets more vulnerable to fresh shocks before the expected supply recovery in 2027.
“As the remaining buffers in the system continue to erode, in the absence of a resolution to the conflicts in the Middle East, oil markets may experience more turmoil in the months ahead before any eventual surplus emerges in 2027,” the agency said.
That warning makes the pace of inventory depletion a critical factor in the outlook. A market with lower stocks has less flexibility to absorb sudden losses of supply, potentially magnifying the price impact of further attacks, export restrictions or disruptions to shipping routes.
Strait of Hormuz Recovery Faces Renewed Threats
The Middle East remains central to the supply outlook, particularly because of the importance of Gulf exports and the Strait of Hormuz to global energy trade.
Crude oil exports from Middle Eastern Gulf producers increased by 4.4 million barrels per day in September, reaching approximately 75% of pre-war levels, the IEA said. Shipments through the Strait of Hormuz rose by 3.7 million barrels per day to 10.9 million barrels per day, supported by robust ship-to-ship transfer activity in the Gulf of Oman.
The recovery offered some evidence that export flows could improve despite the conflict-related disruptions. However, the agency warned that renewed attacks on regional energy infrastructure and tanker traffic were threatening to reverse those gains.
“However, the recent escalation in attacks on regional energy infrastructure and tanker traffic is threatening to derail further gains,” the IEA said.
The risk is that improvements in crude exports may not translate into a sustained recovery in refined fuel supplies if refineries remain disrupted or shipments of diesel and other middle distillates continue to be constrained. The market must restore both the flow of crude and the capacity to process and distribute it into the products consumers need.
For now, the IEA’s forecast offers a divided outlook. A projected increase in global oil supply in 2027 could eventually ease the broader market imbalance, but diesel users may face months of elevated prices and tight availability before that recovery takes hold.
The immediate concern is that the market is entering a period of seasonal demand with fewer inventory buffers and persistent geopolitical risks. Unless disrupted supplies recover more quickly than expected, emergency stock releases and improving refinery operations may prove insufficient to prevent further volatility in diesel prices, keeping pressure on inflation, industrial costs and economic activity well into next year.