Oil embargo and fuel shortage: raw materials cut off, diesel prices soaring amid drought and shrinking palm oil supply

【Answer 1】 I. Russia’s Oil Artery Severed—A Diesel Ban Forged by Drones On July 8, President Putin chaired a government meeting where Deputy Prime Minister Alexander Novak announced on the spot: a complete ban on diesel exports by Russian oil companies, effective until July 31. Gasoline and jet fuel exports were also banned, and starting in July, Russia would begin importing refined petroleum products—a stark reversal for a country that is one of the world’s largest crude oil exporters, unprecedented since the Cold War. The root cause lies not in political will, but in diminished capacity. Ukrainian drones have persistently struck Russian domestic refining facilities: Moscow’s Kapotnya Refinery—which supplies 40% of the capital’s gasoline and 50% of its diesel—has been hit twice; multiple major refineries across Siberia have halted operations. Novak admitted that nearly 40% of Russia’s primary refining capacity has fallen into full or partial shutdown. Western sanctions have severed supply chains for precision equipment and spare parts, stretching refinery repair timelines from months to years. Aging infrastructure compounded by delayed maintenance means refined output barely meets domestic demand. The numbers tell the story: According to Kpler, Russia’s seaborne diesel exports in June dropped to 426,000 barrels per day—the lowest since 2017—and nearly halved compared to 827,000 bpd a year earlier. Russia once supplied 11% of global seaborne diesel, ranking second only to the United States. That share has now been effectively ripped out of global markets. Since late May, gas stations across Russia have imposed rationing and quotas, triggering long queues and sharp price spikes. The government has exhausted all measures—maximizing refinery throughput, releasing reserves, shortening maintenance schedules, and mobilizing small-scale refiners—yet still declares the situation 'severe.' The export ban was not a choice—it was the only option. II. Diesel Shortage Spreads—Refined Product Gaps Are Deadlier Than Crude Shortages The public instinct is: 'Oil prices fell—so the crisis is over.' But the reality of the refined products market is precisely the opposite: crude oil ≠ gasoline/diesel. Global refining capacity is undergoing structural collapse, and shortages of diesel and jet fuel are far more critical than crude scarcity itself. Global inventories have been depleted. U.S. distillate stocks (including diesel and heating oil) hover near their 23-year lows—around 100 million barrels; Northwest European diesel stocks have shrunk roughly 20% since the Iran conflict, leaving virtually no buffer. In June, the Bruegel think tank warned that European jet fuel stocks had fallen below 70% of their five-year average, casting a bleak outlook for summer supply. Refining margins flash red. Europe’s benchmark diesel crack spread has surged over 35%, exceeding $46 per barrel; Singapore’s crack spread has rebounded above $40 per barrel. This signals soaring profitability for each additional barrel of diesel produced—but profit alone cannot boost output, as feedstock (Middle Eastern heavy crude) supply remains incomplete and refinery utilization rates stay low. The IEA’s June report sounded the death knell: global refinery throughput is projected to decline by 2 million bpd in 2026, falling to 82 million bpd. Q2 global processing volumes dropped 4.7 million bpd year-on-year. Diesel accounts for the largest demand drag—down 460,000 bpd annually; gasoline follows, down 210,000 bpd.

Diesel: the hottest keyword in today’s global oil market

【Answer 2】 The International Energy Agency estimates that although U.S. fuel exports in July 2026 rose approximately 700,000 barrels per day year-on-year, global seaborne trade in petroleum products plummeted by 3.8 million bpd—driven primarily by steep declines in diesel and jet fuel exports from Russia and the Middle East. (II) U.S. Diesel Exports Hit an All-Time High As a highly market-oriented petroleum producer and exporter, the U.S. has seen its refiners dramatically ramp up diesel exports to international markets amid tightening global supply and surging prices—reaching record highs. On August 6, 2026, ZeroHedge, a prominent U.S. financial blog, published an article titled 'Oil Price' detailing this surge. With global supply tightening, U.S. distillate exports last week soared to a record high. Disruptions to maritime traffic in the Persian Gulf and surrounding strategic waterways—and Ukrainian drone strikes that crippled parts of Russia’s energy infrastructure—have delivered a major windfall to U.S. refiners and export terminals along the U.S.-Mexico Gulf Coast. Samantha Dart, Co-Head of Global Commodities Research at Goldman Sachs, told Bloomberg TV at the start of this week: 'Indeed, the situation in Russia is causing us serious concern.' Dart warned: 'In terms of petroleum products—as I noted earlier—diesel is currently the most vulnerable product, not only due to strong seasonal winter demand but also because of supply-side risks. The point you raised initially is also crucial—not just the war’s impact, but the condition of Russian refineries themselves. Russia has traditionally been a major diesel exporter, yet it has now imposed export restrictions.' Last month, Goldman Sachs analyst Daan Struyven cautioned: 'The epicenter of the diesel supply shortage is, in fact, the United States.' As global supply continues to shrink, energy exporters along the U.S. Gulf Coast have emerged as winners—shipping a record 1.9 million barrels of diesel per day to overseas customers last week. Over the past five weeks, daily shipments have consistently exceeded 1.5 million barrels, with recent cargoes primarily destined for Northwest European ports—now at the heart of the global diesel shortage, given disruptions at Strait of Hormuz refineries and Ukrainian strikes against Russian refining capacity. The cost of this export surge is that U.S. distillate inventories have plunged to their lowest seasonal level since 1996—raising the risk of domestic market tightening during the autumn demand surge. (III) U.S. Diesel Stocks Near 23-Year Lows; European Stocks Approach 2022 Crisis Levels Amid extreme global diesel supply tightness, both U.S. and European diesel inventories have fallen to historic lows. On August 18, 2026, ZeroHedge published another article on 'Oil Price' covering this development. ZeroHedge notes that the front-month NYMEX heating oil/WTI crack spread has surged to $102 per barrel—far outpacing crude oil price gains. With the Northern Hemisphere harvest season entering its peak, U.S. diesel stocks are nearing their lowest level in 23 years, while European stocks are approaching levels seen during the 2022 crisis. Strategic Petroleum Reserve releases have suppressed crude prices and driven emergency reserves below 300 million barrels—but these measures have done nothing to resolve the fuel shortage.

Global diesel shortage likely to last into 2027 as storage tanks drain

18 hours ago

Geopolitical conflicts in Iran and Ukraine are driving a global diesel shortage with inventories at historic lows, prompting EIA forecasts that tight supplies will persist through 2027. Record prices and strained logistics are impacting agriculture and manufacturing sectors worldwide.

reuters

2026-09-21

Global diesel shortage likely to last into 2027 as storage tanks drain

Global diesel shortage likely to last into 2027 as storage tanks drain

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