Oil surplus fails to guarantee diesel price drop

The global oil market is heading toward a supply surplus in the fourth quarter of 2026, yet increased crude availability does not ensure a corresponding decline in diesel prices. Refining capacity remains constrained, limiting the flow of fuel products to consumer markets despite improved crude balances.

Refining bottlenecks persist

A report published by MarketWatch highlights that improving oil fundamentals mask ongoing difficulties in delivering fuel to end-users. Rebecca Babin, Senior Energy Trader and Managing Director at CIBC Private Wealth Management, noted that while the market appears healthier on paper, it operates with significant deficiencies, high risks, and minimal margin for error.

Global refinery throughput dropped by 1.3 million barrels per day in October to a seasonal low of 81.3 million barrels, according to the International Energy Agency (IEA). The agency forecasts operational recovery to 84.7 million barrels per day in December, which would support derivative production in the coming period.

Diesel supply faces regional disruptions

Diesel supplies remain vulnerable to losses from the Middle East and disrupted flows from Russia due attacks on energy infrastructure. Conversely, refineries in the Atlantic Basin, particularly in the United States, are increasing operations to capitalize on higher refining margins, as stated in the IEA report issued on November 13.

Price movements reveal a divergence: North Sea benchmark crude fell 32% from its early October peak, while European diesel declined only 11% over the same timeframe. European diesel remained near $180 per barrel, standing 77% above pre-war levels, whereas crude traded around $93 per barrel.

Product exports recover slowly

Derivative loading reached approximately 3 million barrels per day in October, up from a May low of 1 million barrels, according to Fortixsa data. However, volumes remained at roughly half of pre-war levels. These shipments included distillates such as diesel, naphtha, and liquefied petroleum gas.

Xavier Tang, Chief Market Analyst at Fortixsa, explained that continued drone attacks on refineries have led producers to prioritize crude shipments, accounting for part of the disparity in recovery between the two markets.

Emergency stocks bridge gap

The IEA projects average global oil supply will reach 105 million barrels per day in the fourth quarter, exceeding demand by about 1.7 million barrels per day, reversing earlier deficit forecasts. Simultaneously, member countries plan to withdraw an additional 71 million barrels from emergency reserves, including crude and oil products, through the end of February 2027.

The agency views accelerated release of diesel inventories as a temporary bridge to cover supply gaps until refinery output recovers. For transport sectors reliant on diesel, fuel prices remain tied to the availability of refined products and their transportation to markets, even as overall oil balances improve. The IEA links relief from scarcity to increased refinery runs and export supplies, emphasizing that shipping security remains critical for sustaining recovery.