The average U.S. retail diesel price dropped 15.1 cents per gallon to $5.059 in the week ending June 16, marking the lowest level since mid-March, according to a new International Energy Agency report released Wednesday. The decline comes as oil markets react to a recently signed peace agreement between the U.S. and Iran, following months of conflict that disrupted global oil supply. But the IEA's monthly analysis delivers a mixed message, offering support for both bullish and bearish predictions about where fuel prices head next.
The report reveals stark supply and demand shifts triggered by the conflict. Global oil supply this year will average 102.4 million barrels per day, down 3.9 million b/d from 2025 levels. That average masks more severe short-term disruption: global production in May fell to 94.5 million b/d, down 13.6 million b/d from pre-war levels at the start of March. Demand has also declined, with second quarter consumption down about 5 million b/d year-over-year, a drop of 4.8%. For the full year, demand is forecast to decline an average of 1.1 million b/d, though that estimate is 700,000 b/d higher than the agency predicted just a month ago. Asia and the Middle East bore the brunt of the demand destruction, with Chinese, Korean, and Japanese deliveries especially hard-hit. On the CME commodity exchange, ultra low sulfur diesel settled at $3.1702 per gallon Tuesday, down 44.24 cents in just four trading days and down $1.5138 from the March 20 high of $4.6084.
The IEA report warns that the "buffers" that have kept oil prices from spiking even higher are nearly depleted. "Further declines in the coming months could still take global stocks to historic lows," the agency wrote. According to the report, global observed oil stocks have declined on average 3.8 million b/d since early March, accelerating to 4.6 million b/d in May. The agency's current supply and demand balance for June through August "implies a deficit averaging 2.1 mb/d," meaning if realized, "global observable stocks would slip to their lowest seasonal levels since 2022." The report notes that deep cuts to consumption have spread beyond the sectors and regions initially most impacted, with April and May data pointing to "plunging demand across almost all product categories and regions."
The report explains that several factors have prevented even steeper price increases during the conflict: sharp declines in Japanese and Chinese imports, reduced refinery runs that created product supply shocks in Asia, robust growth from the Americas, and steep U.S. Strategic Petroleum Reserve releases. Most importantly, the drawdown in global inventories absorbed much of the supply shock. But the IEA makes clear this cushion can't last. "The global oil balance is still expected to remain in a sizeable deficit this year," the agency said. A full return to normal exports through the Strait of Hormuz will take "at least several months or more," partly because tanker owners will avoid pre-war shipping lanes until mines are removed and contentious fee rate issues are resolved.
The outlook splits sharply between the near and longer term. Output increases after the peace deal will "slowly ramp up," keeping the market tight through summer. But in its first forecast for 2027, the IEA predicts global oil supplies will surge to about 110 million b/d next year, roughly 8 million b/d more than 2026 and 2 million b/d above where supply was trending before the war began. That suggests today's falling diesel prices may be just the beginning of a longer relief for trucking companies and consumers, but only if inventories can hold out until production fully recovers.