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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The World Is Facing A Critical Diesel Shortage

  • Kemp: diesel fuel stocks in Europe are at their lowest since 2008.
  • Russia is a major supplier of diesel, meaning Western sanctions for its invasion of Ukraine are affecting these supplies too.
  • A further rise in diesel prices is expected as production still has to catch up.

A crude oil shortage is invariably bad news for those that consume oil products. But when it comes to these products, a diesel shortage has the potential to be even more devastating than a crude shortage. Reuters' Rowena Edwards reported in early February that the supply tightness in crude oil, gas, and coal was beginning to spread to oil products, most notably middle distillates, the most popular among which is diesel fuel. 

The fuel, whose biggest market is freight transport, got hit severely during the pandemic lockdowns as transport rates declined. After the end of the lockdowns, however, as economies began to recover from the worst of the pandemic, transport picked up, and diesel fuel demand jumped. Yet production still has to catch up.

Reuters' John Kemp reported this week that diesel fuel stocks in Europe are at their lowest since 2008, and 8 percent—or 35 million barrels—lower than the five-year average for this time of the year.

In the United States, the situation is graver still. There, diesel fuel inventories are 21 percent lower than the pre-pandemic five-year seasonal average, which translates into 30 million barrels.

In Singapore, a global energy trade hub, diesel fuel inventories are 4 million barrels below the seasonal five-year average from before the pandemic. 

Related: Mission Impossible: Can Biden Bring Oil Prices Down?

What is perhaps worse, however, is that over the past 12 months, the combined diesel fuel inventories in the U.S., Europe, and Singapore, have shed a combined 110 million barrels that have yet to be replaced, Kemp noted.

On top of all this, Russia is a major supplier of diesel, meaning Western sanctions for its invasion of Ukraine are affecting these supplies too. With the market increasingly tight, Shell and BP have shied away from offering any diesel fuel cargos on the German market for two weeks, Reuters reported last week, for fear of shortages.

In the UK, meanwhile, the Daily Mail cited analysts as warning that the government may need to resort to diesel fuel rationing from next month because of the state of the market and the ban on Russian oil imports, which include diesel fuel. Russia supplied a third of the UK's imported diesel before the ban.

"Risks of energy rationing and ultimately a recession are growing by the day - something most policymakers seem to be ignoring or not grasping right now.

'If Russian oil is not integrated back into the market within the next few weeks, we are at a real risk of having to ration crude and products by the summer," the Daily Mail report quoted an unnamed spokesman for consultancy Energy Aspects as saying.

Back in February, Morgan Stanley recalled a situation in 2008, when diesel fuel prices reached $180 per barrel, while crude oil was flirting with $140. And there wasn't a war in 2008.

"A repeat of that is not our base case, but it is notable that diesel prices have been tracking the 2007-08 period closely in recent months," the bank's analysts said, as quoted by Reuters' Edwards, adding they expected crude to reach $100 per barrel in the second half of the year. Of course, both Brent and WTI reached that only days after this forecast was made.


A tight supply situation invariably pushes prices higher, which cannot be good news in an environment of persistently high inflation coupled with soaring energy prices that keep on feeding that inflation.

Diesel, it seems, is turning into more kindling for consumer prices amid the Ukraine war and the sanctions. And even diesel fuel production growth may not help, according to Reuters' Kemp. It would only move the shortage from diesel fuel to crude, he said in his latest column.

By Irina Slav for Oilprice.com

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Leave a comment
  • Ste An on March 20 2022 said:
    What do you expect ? That is why we are saying from the beginning that, Putin does'nt need to invade Ukraine.

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