Industry Odisha Bureau, Sep14: A global diesel shortage is deepening as the US-Iran and Russia-Ukraine wars disrupt fuel trade. US prices have hit records. The deeper problem is limited refining capacity.
US retail diesel prices topped $6 a gallon last week. That is a record high. Prices stood near $3.50 at the start of the year. Two wars, in Iran and Ukraine, are disrupting fuel trade. But the deeper problem lies in global refining capacity.
Diesel prices hit record levels
Wholesale diesel has traded above $5 a gallon. Diesel is the world’s most-consumed refined petroleum product. It accounts for nearly 30% of total oil demand. Trucking alone consumes roughly half of global diesel output. Rail freight, construction, factories, mining and agriculture use the rest. China and India are especially dependent on diesel. US officials have called the price rise a major concern.
Wars cut global diesel supply
Russia and the Persian Gulf once exported 2.2 million barrels daily. Those flows have fallen roughly 75%, according to Kpler. August exports were only around 520,000 barrels daily. Russia accounts for nearly half of that decline. Ukrainian attacks have disrupted several major Russian refineries. Saudi Arabia has also constrained its export availability. Its Persian Gulf refineries have remained largely idle.
China refining slowdown tightens supply
China has also reduced its crude oil imports. Purchases once averaged 11.5 million barrels a day. Recent imports fell to just above 7 million barrels, per Vortexa. Lower crude imports mean less refining inside China. That has curtailed China’s usual diesel exports.
Refining capacity becomes the main bottleneck
More crude does not automatically mean more diesel. Strategic reserves released by the US and Japan are mostly crude. Refineries still must process that crude into diesel. Building new refining capacity typically takes years. Existing plants are already running as hard as possible.
Refining margins reach record levels
The 3-2-1 crack spread, a rough refining-margin gauge, has surged to about $65. That compares with a historical average near $10.50. Even during 2004 to 2008, it stayed below $30. Refiners are pushing towards what the industry calls “max diesel” mode. Engineering limits still cap how much output can rise. Producing more diesel often means less jet fuel.
Huge diesel market limits quick relief
Global diesel demand totals about 29.5 million barrels a day. Jet fuel demand, by contrast, is below 8 million barrels. Rebalancing such a large market requires far bigger supply shifts.
Weather may offer limited relief
El Niño could bring fewer hurricanes to the US Gulf Coast. That would reduce disruption at Texas and Louisiana refineries. A milder winter could also ease heating-oil demand. Weather alone, however, is not a reliable fix.
The shortage reflects more than scarce crude oil. Limited refining capacity remains the deeper constraint. Higher prices may eventually curb demand and ease pressure. That adjustment, though, carries real economic costs.
