Global Diesel Market Faces "Big Squeeze"
The global diesel market is bracing for a significant supply crunch, with S&P Global Energy forecasting average crack spreads — the difference between crude oil and refined product prices — to reach approximately $84 per barrel through the remainder of 2026. This represents a $31 per barrel increase from prior expectations, signaling an intensifying "squeeze" on refined products, particularly diesel, as inventories continue to fall to historically low levels.
Seasonal Demand Meets Depleted Inventories
As the Northern Hemisphere approaches its fall harvest and the winter heating season looms for regions like the US Northeast, Europe, and North Asia, the demand for diesel is set to surge. This seasonal increase comes at a critical time when global diesel exports averaged just 5.85 million barrels per day (b/d) in August 2026, a 25% decline year-over-year. In the United States, diesel prices have already hit all-time highs, with inventories dipping below five-year seasonal lows despite record refinery runs.
Karim Fawaz, Executive Director at S&P Global Energy, stated, "Winter is coming for diesel markets. The industry has spent six months managing a record disruption, but the next challenge is adapting to a world where supply remains constrained for longer than expected. Inventories are low, spare refining capacity is scarce, and seasonal demand is about to strengthen at exactly the wrong moment."
Refinery Constraints and Geopolitical Factors
The conditions contributing to the diesel supply crunch have worsened, with global refinery runs and capacity projected to stay significantly below pre-crisis levels for an extended period. August 2026 saw global refinery runs down by over 6 million b/d compared to the previous year. S&P Global Energy now anticipates fourth-quarter 2026 global refining runs to be 79.4 million b/d, more than 2 million b/d lower than their prior outlook.
Geopolitical events further exacerbate the situation. In West Asia, crude production and refining operations are not expected to return to pre-war levels before the end of 2027, with regional crude runs averaging about 7.7 million b/d in 2026, roughly 2 million b/d below 2025 levels. Russia's ban on diesel exports has removed 10% of waterborne supply from the global market, and any further decline in Russian refinery runs could force the country to import fuel, compounding the global supply deficit.
Meanwhile, the world's remaining unconstrained refining capacity is operating near maximum levels. US refinery utilization approached 97% this summer, while Europe and North America maintain multi-decade highs. Daniel Evans, Global Head of Fuels and Refining Research at S&P Global Energy, warned, "The market has survived the first phase of the crisis because inventories, trade flows, and refinery flexibility absorbed much of the shock. Those shock absorbers are not disappearing, but they are becoming progressively weaker. Markets are entering winter with less room for error than they had in the spring."
Policy Challenges and Risk of Interventions
The sustained period of low inventories, elevated prices, and limited spare capacity presents significant challenges for governments and policymakers. High diesel prices directly impact critical sectors such as freight, agriculture, construction, manufacturing, and home heating costs. While an outright availability crisis has been averted so far, the risks of interventions designed to protect domestic supplies, ease fuel price and inflation pressures, or manage demand are rising.
Fawaz added, "Policymakers may soon face uncomfortable trade-offs. Protecting consumers from higher fuel costs, preserving energy security, and maintaining open trade flows becomes increasingly difficult when the world is short available refining capacity. The longer this disruption lasts, the harder those choices become." The analysis concludes that diesel remains the fuel most exposed to shortages, with the market's margin for error rapidly shrinking, making it susceptible to moving from acute tightness to outright distress with the slightest supply disturbance.