Global diesel shortage: why Gulf refined fuel exports lag crude oil shipments

Gulf countries restored crude shipments faster because their infrastructure and trading methods are better suited to moving crude oil. Crude is a single broad product, so exporters can focus on getting oil from producers to buyers. This matters because refined fuels, including diesel, remain scarce even as crude flows improve.

Analysts said Middle Eastern exporters used ship-to-ship transfers to move crude at sea. This helped crude exports recover quickly after the disruption. Diesel exports did not benefit as much because refined fuels need more specific handling and shipping arrangements.

The results are stark. Gulf net diesel exports averaged only 390,000 barrels per day in August, just over one-quarter of pre-war levels. The region has found a way to move crude, but it has not consistently restored separate exports of six or seven refined products. Diesel supplies therefore remain tight.

Diesel is a liquid fuel made by processing crude oil in a refinery. It powers road vehicles, farm machinery and some heating systems. Crude oil is the raw petroleum mixture pumped from underground. It cannot simply be used as ordinary road diesel without being processed into separate fuels.

A refinery separates and transforms crude into products such as diesel, gasoline and other fuels. Each product has different properties and requires its own handling and shipping arrangements. That difference explains why moving crude does not automatically restore diesel supplies.

The article highlights this gap in the current crisis. Middle Eastern crude exports recovered quickly, but diesel exports remained extremely low. Net Gulf diesel exports averaged 390,000 barrels per day in August, while diesel prices rose more than 66 per cent since the Iran war began. In short, available crude does not guarantee enough finished diesel.

Diesel supplies are under heavy pressure because exports have not recovered and inventories are shrinking. This matters because diesel is essential for farming, heating and road freight. When supply buffers disappear, even a modest new disruption can tighten markets further and push prices higher.

Gulf countries exported an average of only 390,000 barrels per day of diesel in August. That was just over one-quarter of their levels before the US-Israel war on Iran. The IEA also reported that observed global inventories had fallen by 507 million barrels since the war began.

The United States shows the strain clearly. Commercial distillate inventories stood at 100.2 million barrels for the week ending October 2, about 14 per cent below the five-year seasonal average. The US Strategic Petroleum Reserve had fallen to about 283 million barrels, its lowest level since 1982. Refining is expected to remain stretched into next year.

When diesel supplies tighten, prices usually rise because buyers compete for fewer available barrels. Diesel is especially important because it supports several basic activities at once. Higher fuel costs can therefore spread through farms, heating systems and road transport.

The article reports that diesel prices surged by more than 66 per cent since the Iran war began in late February. US diesel futures briefly fell after the G7 announced an emergency release, but soon moved higher again. That reaction showed how strongly markets still viewed the shortage.

The pressure affects everyday economic activity. Farmers need diesel for agricultural work, households and businesses use it for heating, and road freight depends on it to move goods. The article does not quantify the exact cost to each activity, but it indicates that continued shortages will keep prices bullish and increase the risk of wider market tightening.

Shipping several refined fuels is harder because refining creates different products, each with its own specifications and handling needs. Crude oil can be moved as a single raw material, but diesel, gasoline and other fuels cannot always share the same arrangements. This makes a broad export recovery slower and more complicated.

Zhao Xuyi explained that Middle Eastern exporters restored crude flows through ship-to-ship transfers. Oil was moved between vessels at sea, allowing crude shipments to recover quickly. That solution does not solve the refined-fuel problem because products must be exported separately and consistently.

The article says the Middle East has not yet resolved how to export six or seven different refined products reliably. This helps explain why crude shipments have recovered while diesel remains scarce. Gulf net diesel exports averaged 390,000 barrels per day in August, only slightly more than one-quarter of pre-war levels.

Emergency supplies can provide temporary relief, but they are unlikely to replace the Gulf exports that remain missing. The central problem is structural: global inventories are falling, refining capacity is stretched, and refined-fuel exports have not recovered. A short release cannot permanently repair those conditions.

The G7 planned to release 100 million barrels of crude and refined products, with substantial diesel volumes due early. US futures initially fell, then edged higher. Russia also agreed, according to Trump, to supply more than 300,000 tonnes of diesel to the US immediately, with further volumes in November.

Zhao Xuyi called the G7 release limited and said it could ease only the short-term shortage. Analyst Rory Johnston described the Russian agreement as insignificant. US distillate stocks were already 14 per cent below the five-year average, while the wider export and refining problems remained unresolved.

An oil refinery processes crude oil and separates or transforms it into finished fuels, including diesel. This step matters because crude is not the same as the fuel used by trucks, farms or heating systems. A supply chain needs both enough crude and enough working refinery capacity.

For example, crude exports can recover through ship-to-ship transfers, yet diesel exports can remain weak if refineries are disrupted or unable to process normal volumes. The article says the global refining system is stretched to its limit. It also cites increasing strikes on refineries in the Middle East and Russia.

Goldman Sachs analysts projected that global refinery processing would return to seasonal norms only in the second half of next year. That means more crude alone may not solve the shortage. Until refineries recover and finished products can be exported reliably, diesel supplies can remain tight, inventories can fall and prices can stay bullish.