Diesel Squeeze to Worsen as Winter Approaches

The diesel market is expected to tighten further as winter approaches, with Europe facing the greatest risk due to low inventories and constrained imports. The region’s refineries are running at full capacity, but demand is set to rise, and stockpiles are dwindling. Disruptions in the Strait of Hormuz and damage to refineries in the Persian Gulf and Russia have severely constrained exports, accounting for around a third of global diesel exports last year. Analysts predict that rising winter demand could curb US and Asian exports, leaving Europe dependent on refinery output and Chinese shipments. Diesel prices have already risen almost 40% since June 18, outpacing crude oil, and are likely to feed through to freight costs, inflation, and political pressure on governments. Europe’s supply challenges are being compounded by sanctions, with restrictions on buying Russian refined products and tighter EU sanctions limiting imports of fuels refined from Russian crude in third countries. US refiners have been shipping record amounts of distillate fuels to Europe, but this is unlikely to continue as American demand rises. Little relief is expected from Asia, as refiners there will prioritize meeting their own region’s demand and may reduce diesel exports. The situation highlights the vulnerability of regions without sufficient refining capacity to global energy supply shocks, with Europe likely to be particularly hard hit.