The worldwide diesel market will stay tight well into 2027 as disruptions in the Gulf leave inventories drained and postpone a complete recovery, the International Energy Agency (IEA) warned Wednesday in its monthly oil market report. The Paris-based agency said the market hinges on a rebound in Middle Eastern petroleum product supplies, which will require time to restore depleted stocks. Diesel prices reached record peaks across Europe and the United States in recent weeks as diminished oil exports from the Gulf and damage to regional refineries from Iranian retaliatory attacks tightened supplies.
Global oil supply climbed by 2.5 million barrels per day in September from the previous month to 102.32 million barrels per day as Gulf producers ramped up output, according to the IEA. OPEC+ production jumped by 2.1 million barrels per day to 40.6 million barrels per day, with Saudi Arabia leading the surge by boosting output 2.3 million barrels per day to 8.3 million barrels per day. Exports from Gulf countries, excluding Oman, rose by 4.7 million barrels per day to 16.5 million barrels per day but stayed 33% below prewar levels. Shipments through the Strait of Hormuz increased by 3.7 million barrels per day to 10.9 million barrels per day, while regional crude exports grew by 4.4 million barrels per day to 13.9 million barrels per day. The IEA forecasts that worldwide oil demand will fall by an average of 2.6 million barrels per day in 2026 to 102.4 million barrels per day, with demand expected to drop by 2.5 million barrels per day year over year in the fourth quarter alone.
The agency warned that if Gulf supplies don't return to normal levels soon, additional cuts in fuel demand may be necessary to balance markets, potentially carrying steep economic costs. "The gasoil market balance will remain tight well into 2027 and is dependent on a recovery of product supply from the Middle East," the IEA stated. The report noted that refinery recovery is falling short of closing the supply gap. While the IEA expects refining capacity to recover and push the diesel market into surplus in the first quarter of next year, that improvement won't fully offset the deficit built up since the United States and Israel launched strikes against Iran in late February, sending energy prices soaring worldwide.
Governments have responded to diesel price spikes by slashing fuel taxes, offering subsidies, and tapping strategic reserves, adding to the stockpiles that will eventually need replenishing. Limited access to petroleum products, rapidly climbing fuel prices, and a worsening economic outlook are among the main factors driving the drop in demand, according to the IEA. The agency estimates that declining diesel consumption will account for roughly 25% of the total fall in demand. Continued attacks on oil infrastructure and tankers threaten to interrupt the recovery in regional production and exports, the report warned. Global oil demand is projected to rebound by 2 million barrels per day in 2027 to 104.4 million barrels per day, though consumption is expected to remain 620,000 barrels per day below its 2025 level.