The International Energy Agency (IEA) issued a warning in its October oil market report, stating that the ongoing conflict in Iran continues to disrupt the global oil supply chain. The diesel market's supply shortage is not a short-term phenomenon, and the supply-demand imbalance will persist into the second half of 2027. Even if refinery operating rates gradually recover, the depleted inventories will be difficult to replenish before the second half of 2027. For crude oil and refined product trading, this means that crack spreads and near-month premiums/discounts will remain strong, and geopolitical risks will continue to amplify market volatility. Goldman Sachs also predicts that this diesel shortage cycle will continue until the end of 2027. Under the hard constraints of global refining capacity, refined product prices must remain high to suppress demand and prevent consumption from exceeding refinery capacity limits. JPMorgan Chase suggests that the pressure from this supply shock is more concentrated on refined product prices, while crude oil prices are relatively controllable. The main trading focus should shift from crude oil to middle distillates.

Diesel fundamentals: Inventory has been significantly reduced, but the supply-demand gap is unlikely to be closed in the fourth quarter.

The diesel market experienced an unseasonal tightening in the third quarter, coupled with unexpected inventory reductions in the previous three months. Global diesel has lost a crucial safety cushion in terms of inventory levels before the traditional peak winter demand season. IEA data shows that global diesel exports in September fell sharply by 700,000 barrels per day year-on-year, with Russia and the Middle East experiencing a combined supply gap of 1.3 million barrels per day. Increased production in other producing regions could only partially offset this loss. Key points to watch in trading: Although higher oil prices have suppressed overall crude oil consumption, diesel demand has low price elasticity, and with many countries implementing subsidy policies to buffer end-user costs, diesel consumption remains resilient. Continuously declining inventories, a significant increase in diesel crack spreads, and deep backwardation in the market all signal a strong need for new supply. The IEA judges that even with a rapid recovery in refinery throughput at the end of the year, diesel supply in the fourth quarter of 2026 will still be insufficient to cover demand. Excluding seasonal fluctuations, inventory replenishment is unlikely in the short term. Anthony Yuen, head of energy strategy at Citigroup, pointed out that global diesel inventories have fallen to a five-year low, and the inventory buffer has been almost exhausted. Bank of America's Blanch believes that as long as there is no substantial recovery on the supply side, diesel prices will remain volatile and high for most of next year. Zijin Tianfeng Futures added that refineries are currently operating at near full capacity, and there is no readily available spare capacity. Simply increasing refinery operating rates will not be enough to quickly fill the gap.

Price Performance: Wholesale diesel prices in many countries hit record highs, while landed prices still face upward risks.

The tightness in fundamentals has been fully reflected in spot prices. In mid-September, Singapore diesel spot prices broke through $200/barrel, and wholesale diesel prices in the European and American markets reached a record high of approximately $220/barrel; retail diesel prices in most developed economies also hit record highs. The IEA also warned that shipping capacity in the crude oil seaborne market is tight, and diesel landed prices in major diesel importing regions such as Europe, Africa, and Latin America still face the risk of further increases in the coming weeks. The US market is also under pressure, with US diesel retail prices breaking through $6/gallon for the first time last month. Trading institutions generally believe that the high-price environment may continue for several months. A research report from JPMorgan Chase emphasized that diesel is directly linked to freight, agriculture, and manufacturing, and is more likely to transmit inflation than gasoline, making it a "hidden inflation driver"; De Haan, an analyst at the US energy analysis firm GasBuddy, warned that high diesel prices could become a silent killer of the US economy; Haitong Futures data shows that the European diesel crack spread once surged to $88/barrel, and refining margins entered a historical extreme range.

The Russia-US diesel agreement: limited in scale, unlikely to change the overall diesel shortage situation.

To alleviate domestic fuel pressures, the United States pushed for a diesel supply agreement with Russia, planning for Russia to release 300,000 tons of diesel globally. Currently, tankers carrying approximately 40,000 tons of ultra-low sulfur diesel have departed from the Baltic port of Primorsk, bound for Morocco. However, IEA and European officials believe the agreement is limited in scale and unlikely to reverse the overall diesel shortage at the macro level, and Russia's ability to fully fulfill its obligations remains uncertain. European critics argue that this move is tantamount to a de facto relaxation of sanctions against Russia, contradicting the goal of promoting Russia-Ukraine negotiations. The agreement has also sparked considerable controversy within the United States. The Carnegie Endowment for International Peace commented that the agreement has a weak economic effect on price reductions and will undermine the unified sanctions framework between the US and Europe at the geopolitical level. Market analysts estimate that 300,000 tons of diesel represents less than 5% of the global daily diesel trade volume, a drop in the ocean. The US think tank, the Institute for War Studies, argues that Russia has not made any commitments regarding a ceasefire, and the US is making unilateral concessions.

Global oil market supply and demand forecast: Demand contraction in 2026, supply expected to rebound in 2027.

On the demand side, the IEA predicts that global crude oil demand will decline by an average of 2.6 million barrels per day in 2026, with diesel demand accounting for 25% of the reduction. On the supply side, crude oil supply is expected to decrease by an average of 5.8 million barrels per day in 2026, with a rebound only expected in 2027, with an annual increase of 7.7 million barrels per day. Goldman Sachs estimates that the central level of the diesel crack spread between Europe and the US will remain at $40-63 per barrel in 2027, twice the historical normal level. JPMorgan's commodities team's baseline scenario expects Brent crude to fall back to $78 per barrel by the end of 2026, with supply recovery contingent on continued stable shipping from the Middle East.

Core risk: Geopolitical conflict in the Gulf remains the biggest uncertainty.

The biggest risk variable in the market remains the geopolitical situation in the Gulf. Recent attacks by Houthi rebels on Riyadh, the Saudi capital, and on Saudi Aramco administrative buildings have resulted in casualties. The IEA emphasizes that renewed attacks in the Gulf region will directly disrupt the oil market's recovery. Saudi Arabia's increased crude oil production in September was the core source of the OPEC+ supply increase that month. If Saudi production is attacked, the current recovery logic for crude oil and refined oil products will be completely disrupted. Traders need to continuously monitor shipping in the Red Sea and the Strait of Hormuz, as well as security news regarding Middle Eastern oil and gas facilities. Goldman Sachs' scenario analysis suggests that if the disruption to shipping in the Strait of Hormuz continues, Brent crude oil faces an upside risk of reaching $120/barrel in the fourth quarter. Haitong Futures warns that the simultaneous contraction of diesel exporting regions in the Middle East and Russia constitutes the core contradiction of this diesel shortage; any attack on facilities will quickly push up the crack spread.

The market focus shifted to a structural gap in diesel prices, suppressing global asset prices.

The current focus of the oil market's contradictions has shifted from simply crude oil supply to the structural shortage of middle distillate fuels (diesel). While crude oil prices may experience impulsive fluctuations due to geopolitical risk aversion, the diesel crack spread and near-month refined oil contracts are the core drivers of this market trend. The diesel shortage is not an isolated refined oil market phenomenon; it will, in turn, support crude oil valuations: high crack margins will incentivize refineries to rush to process oil, pushing up crude oil procurement demand and thus providing a floor for both spot and futures crude oil prices. As long as the Middle East conflict does not substantially ease, the combination of low inventory and rigid demand will continue to support diesel premiums; if Middle Eastern oil and gas facilities are attacked, diesel and crude oil prices will rise in unison, triggering a rapid bull market. Several overseas investment banks have reached a consensus: this market trend is not about a shortage of crude oil, but about readily available diesel; the focus should be on crack spreads and spot premiums/discounts, followed by the absolute price of crude oil. The persistently high refined oil prices have led to pessimistic expectations regarding rising corporate operating costs and inflation, directly impacting global equity markets and increasing risk aversion. Meanwhile, the constraint of high short-term interest rates remains the main pressure on gold, but when the selling pressure from indiscriminate asset selling ends and the market begins to calmly price in the risk of economic recession, gold will gain upward momentum.