© REUTERS
Global diesel markets are “exceptionally tight”, the International Energy Agency has warned, adding that EU sanctions on Russian oil coming into force in the next three months will increase competition for limited supplies.
Diesel prices and the relative difference to the price of crude oil rose to record levels in October and are now 70% and 425% higher, respectively, than a year ago, according to the IEA.
“High diesel prices are fueling inflation, adding pressure on the global economy and global oil demand,” the Paris-based IEA said.
Once the EU embargo on imports of diesel and other refined products from Russia takes effect in February, the market will tighten further, he warned.
“Competition for non-Russian diesel barrels will be fierce, and EU countries will have to offer cargoes from the US, the Middle East and India away from their traditional buyers,” he said. “Increased refinery capacity will eventually help ease diesel strains. However, until then, if prices are too high, further demand destruction may be inevitable for market imbalances to clear “.
Diesel markets were already stretched before Russia’s invasion of Ukraine due to the shutdown of 3.5 million bpd 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 reduced supply just as demand for the fuel, a key driver 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, he said. Global oil demand is expected to fall by 240,000 barrels a day in the fourth quarter compared with last year, he said.