IEA sees diesel market staying tight through 2027 as oil demand drops

Diesel supply stays short into 2027

The International Energy Agency (IEA) said on Wednesday, 14 October 2026, that the diesel market will remain tight in 2027. Improvements in global diesel output in early 2027 will not be enough to offset the deficit built up during 2026, the agency said in its monthly oil market report. It judges restocking unlikely before the second half of 2027, because stocks were drawn down against the usual seasonal pattern ahead of autumn refinery maintenance and the winter demand peak. If Middle East diesel supplies do not recover, the agency warns that further demand cuts could be needed, with significant economic costs.

Supply losses explain much of the squeeze. Diesel supply fell by 1.7 million barrels per day in the third quarter, the IEA said, as the Iran conflict restricted shipments through the Strait of Hormuz and Russia cut diesel output after Ukrainian attacks on its refineries. Diesel exports from the Middle East and Russia lost 1.3 million barrels per day in September, and other sources only partly offset that loss. Global diesel exports were 700,000 barrels per day lower in September than a year earlier. Refining activity is expected to recover toward the end of 2026, which should help rebuild stocks but will not close the 2026 gap.

Prices and demand

Diesel refining margins, the premium of diesel over crude, reached record levels of nearly $95 per barrel in September. Wholesale diesel prices passed $200 per barrel in Singapore in mid-September and approached $220 in Europe and the United States, the agency said. Pump prices followed and reached record levels in most large economies, and in the US the diesel price exceeded $6 per gallon for the first time in September. The IEA warned that tight seaborne crude markets could push diesel delivery prices higher in Europe, Africa and Latin America in the coming weeks.

Global oil demand is now seen falling by 2.6 million barrels per day in 2026, to an average of 102.4 mb/d. Demand contracted by 5 mb/d in the second quarter and by 3.7 mb/d in the third, and the agency forecasts a 2.5 mb/d drop in the fourth quarter. Diesel accounts for 25% of the expected decline. The forecast has been revised down in steps, from a 1.6 mb/d fall in the August outlook to 2.5 mb/d in September and 2.6 mb/d now. Diesel demand remained strong because it is relatively insensitive to price changes, and government measures to ease consumers' costs also helped, the agency said.

Supply and refining outlook

Global oil supply rose 2.5 million barrels per day in September from August, to 102.3 mb/d, led by Gulf producers. OPEC+ output increased 2.1 mb/d, mainly from Saudi Arabia, while the United Arab Emirates led gains among producers outside the group. For 2026 as a whole, supply is forecast to average 100.7 mb/d, down 5.8 mb/d, before rising 7.7 mb/d in 2027. The agency warned that the latest attacks in the Gulf threaten to derail the recovery in Middle East oil exports.

Refinery throughput is forecast to fall 2.3 mb/d in 2026, to 81.7 mb/d, then rise 2.8 mb/d in 2027. Refinery runs bottom at a seasonal low of 81.3 mb/d in October before recovering to 84.6 mb/d by year-end. Higher shipping and crude costs cut refining margins in Europe and Asia, while discounted raw materials pushed US margins to new highs. IEA members are coordinating the release of 100 million barrels of oil and diesel from strategic reserves to temper prices.

A US-Russia diesel deal

On 9 October, the United States and Russia announced an agreement to lift sanctions on Russian diesel exports, according to Donald Trump. The deal would allow delivery of 3 million tonnes of diesel within a short period. The available reporting does not set out further terms of the agreement. The IEA says the broader effects of record diesel prices already include higher costs for goods, lower real household incomes, weaker economic activity and higher inflation.