In Southeast Asia, Reuters reported last week, palm oil farmers are seeing diesel supply shortages and spiking prices.
In the United States, diesel fuel exports hit an all-time high in the first week of August, running at an average daily rate of 1.9 million barrels.
“Crude oil is just the input, but diesel is the everything the industrial economy runs on,” he also said.
Prices are, as usual, a good indicator of the supply security of diesel fuel.
Unfortunately for large energy importers, relief in global diesel supply is also rather unlikely for the time being.
As peace in the Persian Gulf remains elusive and Ukrainian drones keep raining on Russian refineries, a global fuel crisis is looming larger by the day as demand is set to increase in the coming months, especially for diesel.
Shortages are already reality in some parts of the world. In Southeast Asia, Reuters reported last week, palm oil farmers are seeing diesel supply shortages and spiking prices. In the United States, diesel fuel exports hit an all-time high in the first week of August, running at an average daily rate of 1.9 million barrels. Meanwhile, Russia, the world’s number-two diesel exporter, has banned exports in order to deal with the local supply squeeze caused by Ukrainian drone attacks on refineries.
The situation is quite far from perfect for large fuel importers such as the European Union because it is now facing new competitors such as Brazil and Turkey, which previously took in a lot of Russian diesel fuel. Still, with that gone, they have to compete with U.S. barrels as supply from the other big refining hub in the Middle East remains severely disrupted.
In the European Union, as many as 30 refineries closed between 2009 and 2024, with another 400,000 barrels daily in capacity set for closure in 2025 amid Brussels’ tightening emission reduction rules that have raised costs for refiners substantially—and made the originally trade-focused bloc a lot more vulnerable to global market disruptions. Related: BofA: Hormuz Needs 10 Times More Ships to Stabilize Oil Markets
“Europe has a tremendous diesel problem,” Eugene Lindell, head of refined products at consultancy FGE NexantECA, told Bloomberg. “It will get ugly in the sense that you will probably see extremely high flat prices.” These high prices will spread to everything from consumer goods to services and, according to FGE’s Lindell, translate into pressure on political circles.
“We’re in a diesel supply crunch right now because none of the Persian Gulf refineries can get product out,” Rabobank senior energy strategist Joe DeLaura said, as quoted by the Wall Street Journal earlier this month. “Crude oil is just the input, but diesel is the everything the industrial economy runs on,” he also said. “Everything in agriculture, everything in construction, everything in mining. Also everything on the supply and distribution side runs on diesel.”
Big Oil majors have also been sounding the alarm on a supply squeeze in fuels that is a lot more serious than the squeeze in crude oil, but it has led to nothing but an attack on the industry by President Trump, who told Exxon and Chevron they were making too much money and had to pass some of it on to consumers.
Meanwhile, those record diesel exports are costing the United States. These have been running at rates of 1.5 million barrels daily for five weeks in a row before rising to the record high, according to Bloomberg. Because refineries cannot produce more diesel at the moment, fuel sellers have been dipping into inventories. As a result, these are now at the lowest since 1996, Bloomberg reported, with peak demand season right around the corner and refinery maintenance season even closer.
Prices are, as usual, a good indicator of the supply security of diesel fuel. In Europe, the price of diesel has gone up by 40% since mid-June, while the price of crude oil has only added 5% over the same period, Bloomberg said in its report on the state of diesel supply from last week. Inventories of the fuel in the EU have shrunk by 30% since March—and the EU has cut off its access not only to Russian fuels but to fuels made from Russian crude in third countries.
This would leave European fuel importers even more exposed to U.S. supply, but that is not going to remain at record rates, according to some analysts. “Gulf Coast refiners can’t keep exporting diesel to Northwest Europe indefinitely. They have their own fish to fry,” Kpler’s head of clean petroleum products Zameer Yusof told Bloomberg.
Asia, meanwhile, has its own fuel supply problems and will not be in a rush to share its diesel, such as it is, with the Europeans. “We never fully recovered from refining losses in the Middle East, and have also lost Russian capacity,” oil analyst June Goh from Sparta Capital said, as quoted by the publication. “The misery of Europe is not an immediate crisis, but one down the line.”
If we add natural gas to diesel, the crisis becomes a lot more severe. The EU’s gas stocks are much lower than the seasonal average, analysts are concerned shortages might emerge by winter, and no one is doing anything about it as gas buyers wait for lower LNG prices—which are rather unlikely at the moment. Unfortunately for large energy importers, relief in global diesel supply is also rather unlikely for the time being.
By Irina Slav for Oilprice.com
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