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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The Global Diesel Crunch Is Going To Get Worse

  • With a European ban on Russian crude and fuels looming, diesel markets are set to tighten even further despite weak economic growth.
  • Distillate fuel inventories in the U.S. just witnessed the biggest drawdown for this time of year in at least 32 years.
  • As we enter heating season in Europe, which is still struggling with a natural gas shortage, demand for distillates will only climb.

Despite signs of weakening economic growth globally, regional diesel markets are tight and could tighten even further when winter comes and when Europe bans imports of Russian crude and fuels.  Distillate fuel inventories are low in the United States and Europe. Stockpiles in the U.S. haven't increased this summer as usual, and in one month since the end of June, they have seen the biggest drawdown for this time of the year in at least 32 years. The fuel market in Europe is even tighter as industries and utilities look to switch to oil products from natural gas, whose prices are at record highs after Russia slashed deliveries to the EU and showed it could not be considered a reliable energy supplier. 

Over the next few months, the shortages could become even worse when heating season begins, which will coincide with the planned EU ban on imports of Russian seaborne fuels at the start of 2023. 

The U.S. exports growing volumes of diesel to Europe, but it is unlikely to ramp up flows much higher because American inventories are also well below seasonal averages while refineries already operate at close to capacity levels. 

Distillate fuel inventories in the United States fell by 2.4 million barrels in the week to July 29 and are about 25% below the five-year average for this time of year, the latest weekly inventory report by the EIA showed this week. 

At 109.3 million barrels as of July 29, the stockpile of diesel, heating oil, and other distillate fuel oils currently sits at its lowest level for this time of the year since 1996, according to estimates from Reuters market analyst John Kemp

Typically, U.S. distillate fuel inventories rise during the summer season when refiners process crude into more gasoline to meet summer driving season demand. But this has not been the case this year. In fact, distillate stocks fell in July by up to 3 million barrels, which is the largest seasonal drawdown since at least 1990, Kemp notes.  

In Europe, the looming EU embargo on Russian crude and products is prompting traders to source growing amounts of diesel from non-Russian sources. The U.S. has been one such source, and its exports hit 1.4 million bpd in July, the highest in five years. A lot of the increase is coming from Europe. 

Europe itself hasn't made a significant advance in cutting its diesel imports from Russia - it actually increased imports of Russian diesel in July, data from energy analytics firm Vortexa showed this week.  

European diesel imports from Russia rose to an unseasonably high level of 680,000 bpd in July, up by 13% month-on-month and 22% year over year, and outpacing non-Russian supplies by about 200,000 bpd, according to Vortexa data.  

Related: Energy Bills Are Set To Soar In The UK

"Overall it appears questionable whether Europeans will manage to fully carry through on the announced diesel import ban, given record diesel prices already over the last five months, Europe's rising rather than falling dependency on Russian diesel, limitations within the global refining system, and the likely significant role of diesel as a replacement fuel for natural gas and power shortfalls. The above will challenge the resolve of Europe and its politicians in particular," Vortexa Chief Economist David Wech wrote. 

Going forward, it will be crucial to see if U.S. refiners – attracted by high European margins – would produce more diesel for export to Europe, Wech told the Financial Times

According to U.S. refiners, there isn't much room for a further increase in diesel shipments from America to Europe. 

Gary Simmons, Executive Vice President and Chief Commercial Officer at Valero Energy, said on the Q2 earnings call last week that "It's going to be a real challenge for us to be able to supply a lot more diesel into Europe." 

With U.S. inventories low and "the industry basically running all out," "it's very difficult for me seeing that there's going to be a lot of flow from the U.S. into Europe," Simmons added. 


Fuel supply across Europe is being further disrupted by critically low water levels on the River Rhine, a major petroleum product transportation corridor. The German unit of OMV told Bloomberg it "is observing a current run on heating oil and diesel." 

Even as economies slow down, the fuel switch to oil from gas in Europe as we approach the winter heating season is likely to support distillate fuel demand and potentially tighten the diesel market further.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on August 07 2022 said:
    Even if the EU goes ahead and bans imports of Russian crude and fuels, Russian diesel and oil fuel supplies will continue to be exported to the world.

    Both China and India are buying large volumes of Russian crude a large part of which is being refined and exported to the EU and the rest of the world as Indian and Chinese petroleum products. Moreover, large volumes of Russian fuel oil are also being imported by Saudi Arabia, UAE and other Arab Gulf countries to replace crude oil in electricity generations and water desalination plants.

    Every single barrel of Russian oil exports is finding buyers around the world. And the more the hapless EU talks about banning Russian crude oil and petroleum products the higher the prices they fetch in the global oil market.

    Western sanctions against Russia have so far failed miserably. The sanctions are in fact harming the economies of those imposing them rather than Russia.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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