Citi warns: diesel exports from the Middle East and Russia are both contracting, potentially creating a global shortfall of 1 million barrels per day this year.

U.S. retail diesel prices have risen to approximately $6.50 per gallon—up from about $3.40 per gallon at the start of the year—with both diesel and heating oil prices nearing their highest levels in 55 years. The diesel crack spread has surged from roughly $25 per barrel at the beginning of the year to $89 per barrel on September 24, while WTI crude rose by only about $25 per barrel over the same period—indicating that this round of price pressure is concentrated squarely on the refined products side. Notably, the supply shortfall is currently being absorbed through inventory drawdowns. Global diesel inventories are projected to decline by around 200–250 million barrels this year; however, visible primary inventories have fallen by only about 50–70 million barrels, suggesting that much of the inventory consumption has already occurred at the end-user level. Shrinking exports from the Middle East and Russia, coupled with refinery output cuts, are further widening the gap. Citi estimates that diesel exports from the Middle East could fall by 500,000–1,000,000 barrels per day, while Russian exports may drop by 300,000–600,000 barrels per day. Combined with reduced operating rates at refineries elsewhere, global diesel supply is tightening further. In August alone, unplanned refinery shutdowns worldwide caused an estimated loss of 3–4 million barrels per day in refined product output. Export disruptions and refinery cutbacks are jointly intensifying market tightness. Globally, disclosed diesel inventories stand at roughly 1 billion barrels—of which about 200 million barrels are held by European governments and approximately 400 million barrels constitute OECD commercial stocks. Thus, European government-held stocks represent a critical potential buffer—but the volume that can be rapidly released remains limited. Should diplomatic efforts fail, Citi believes European government stocks may not be released until after the U.S. midterm elections. The U.S. may also consider restricting diesel exports, though a full ban is unlikely. Even with export restrictions, large volumes of diesel accumulating along the U.S. Gulf Coast could quickly strain local storage capacity.

1. U.S. CPI rose 0.6% month-on-month and 3.7% year-on-year in September. Gasoline prices surged 9.1% month-on-month—accounting for over half of the monthly increase. So yes, inflation there is also being pushed up by oil prices. Markets currently assign a ~49.3% probability to a 25-basis-point rate hike in October—essentially a coin toss. My view is that the Fed will *not* hike in October. The next FOMC meeting runs from October 27–28, just six days before the U.S. midterm elections on November 3. A rate hike six days before the election would inevitably be portrayed—as Powell himself would surely acknowledge—as political interference, regardless of how he frames it. He won’t take that risk. I expect Powell to talk tough verbally in October but hold rates steady in practice. As for December, markets have already decided for him: only about 4% of traders now bet on no change. So the question is no longer *whether*, but merely whether the hike comes one month earlier or later. Recent polling shows 62% of Americans disapprove of Trump’s economic management. In years when gasoline prices rise sharply, the incumbent party’s electoral prospects typically deteriorate—and Trump’s position looks especially precarious this time. 2. Reuters reviewed public filings from LONGi Green Energy, Trina Solar, JinkoSolar, JA Solar, and Tongwei Co., finding that their combined workforce will total 154,061 employees by end-2025—a reduction of 40,589 (roughly 21%) from end-2024. Including cuts made in 2024, cumulative headcount reductions across these five firms have reached about 50% over two years. The situation now is that the combined capacity of just these top five companies exceeds global annual demand. With severe overcapacity, firms are forced into brutal price wars. Many low-cost solar panels sold overseas are actually exported at a loss by Chinese factories—their margins entirely eroded in the race to the bottom. Photovoltaic (PV) modules have long since become ‘cabbage-priced’. The more solar capacity the world installs, the more money Chinese manufacturers lose. Jiemian News reviewed the firms’ 2024 interim reports and found that layoffs have expanded beyond production lines into R&D departments. Cutting factory workers makes sense amid falling orders—but cutting R&D staff signals that executives no longer believe PV technology offers a path to recovery. Why? Gross margins on PV modules hover around 5%, whereas energy storage systems command margins near 30%—about five to six times higher. So who still wants to sell PV modules? Everyone’s rushing into energy storage instead. Moreover, Middle Eastern countries—fearing power plant attacks—are aggressively procuring Chinese battery storage units, generating robust order backlogs. Trina Solar’s energy storage shipments nearly tripled year-on-year and now account for roughly half its total business. These solar giants are likely to evolve increasingly into battery companies—with PV modules becoming little more than an incidental, add-on product. 3. On October 14, the International Energy Agency (IEA) released its monthly oil market report. It forecasts a clear rebound in global oil supply by 2027, with crude oil possibly entering surplus as early as next year—yet diesel supply tightness is expected to persist through 2027. In September, combined diesel exports from the Middle East and Russia fell ~1.3 million barrels per day year-on-year. At ~159 liters per barrel, that equals over 200 million liters lost daily. Many people confuse gasoline and diesel, assuming they’re interchangeable. Key distinction: passenger cars run on gasoline; diesel powers trucks, tractors, excavators, cargo ships, and fishing vessels. When gasoline gets expensive, people simply drive less. When diesel gets expensive, vegetables still need hauling from farms to cities—and packages still need delivering.

IEA: Global Diesel Supply Tightness to Persist Until 2027

Oct 15, 2026

The IEA reports global diesel supply shortages will persist until 2027 due to export disruptions from the Middle East and Russia, with inventories declining and market volatility risks rising.

ccin

2026-02-02

IEA Forecasts Record European LNG Imports in 2026

2026-03-12

IEA Projects Global Oil Supply Drop of 8 Million Barrels Daily Amid Middle East Conflict

2026-04-09

Rare Earths Capacity Outside China Must Expand to Meet Magnet Demand – IEA

2026-04-16

IEA Says Middle East Energy Output Loss Will Take Two Years to Recover

2026-04-19

Global 2025 Power Demand Rose as EV, Data Centers Grew, IEA Says