Energy executives warn diesel crunch will last through winter

The world's diesel fuel market faces a prolonged supply squeeze that will stretch into next year, top energy executives warned on Tuesday at the Asia-Pacific Petroleum Conference in Singapore, citing a structural shortage of refining capacity and the ongoing fallout from wars in Ukraine and the Middle East.

A Market Running on Empty

"There's really a shortage of products because we're missing 2 million barrels a day from Russia, and we're missing nearly 2 million barrels a day from the Middle East," Vitol CEO Russell Hardy said at APPEC, according to Reuters. Hardy, who leads the world's largest independent energy trader, said global petroleum product stockpiles have been drawn down to near-critical levels. "We keep eating into the surplus that exists around the world, and we're pretty much at the bottom of our stockpiles," he said.oilprice+1

Russia's ban on diesel exports, imposed to protect its domestic market while it repairs refineries damaged by Ukrainian drone strikes, has removed a major source of supply from global markets. In the Middle East, refinery output has been curtailed by conflict-related damage and shipping constraints through the Strait of Hormuz, with fuel exports from the region running at roughly 1 million barrels per day. The latest disruption came this week when Houthi forces in Yemen attacked Saudi Aramco's Jizan refinery, which has a capacity of 400,000 barrels daily.reuters+2

Refiners Already at Full Tilt

Mark Senn, senior vice president of global trading at Phillips 66 ↘ 7.03%, said most U.S. refineries are already operating at maximum capacity and cannot do more to ease the shortfall. "When you're looking forward to a winter season coming where diesel stocks are quite deficit, you're setting up for an environment where that strength could continue in those markets," Senn said.thenews+1

U.S. diesel prices have recently broken records, topping $5.90 per gallon, while the diesel crack spread reached an intraday record of $108.02 per barrel, according to Egypt Oil & Gas, citing Reuters data. The tightness is particularly acute in Europe and the Atlantic Basin, where regional inventories sit at historically low seasonal levels, leaving buyers competing for a shrinking pool of spot cargoes.egyptoil-gas+1

Demand Destruction as a Safety Valve

Hardy projected that elevated prices and limited fuel availability will reduce global oil demand by about 1.5 million barrels per day in 2026 compared with 2025. He also flagged that the gap between China's crude imports in 2025 and 2026, currently running at 5 million to 6 million barrels per day, is unsustainable and should narrow toward year-end as Beijing ensures adequate winter fuel supplies.egyptoil-gas+1

Analysts have warned for months that consecutive years of refinery closures, coupled with infrastructure damage and feedstock volatility, mean the global system cannot easily scale up to meet winter heating oil and industrial transport demands. With no resolution in sight for the conflicts driving the disruption, the market appears set for a tense winter.thenews