Diesel Stockpiles Remain Low Amid Refinery Closures, Supporting Crude Prices

Low diesel stockpiles globally support crude prices despite OPEC+ output boost. Analysts are surprised by strong diesel demand amid refinery closures, which has tightened supply and pushed refining margins higher. US trade policies could exacerbate diesel shortage, with tight stocks expected to continue supporting oil prices.

Global diesel stockpiles have reached critically low levels, which is significantly supporting crude oil prices despite recent increases in OPEC+ production. Analysts are surprised by the strong demand for diesel, which has tightened supply and pushed refining margins higher. US trade policies could exacerbate the diesel shortage, with tight stocks expected to continue supporting oil prices.

The oil market is currently racing against time to replenish global diesel stockpiles before hurricanes and refinery maintenance curtail output [1]. Storage tanks have only recently started rising from dramatically low levels, and traders are predicting a tight race to refill them. With price spikes during the Israel-Iran conflict still fresh in memory, most market participants agree that significant easing in prices is unlikely, echoing warnings from Goldman Sachs Group Inc. and TotalEnergies SE [1].

The fate of diesel has wide-reaching ramifications for the global economy. Higher prices can ripple through inflation readings and dent consumer and business confidence. American farmers will need large volumes of diesel to power their tractors and grain dryers during the fall harvesting season, and drivers are already paying the most at the pump in about a year [1].

Meanwhile, US trade policies are further complicating the situation. Trump’s push to punish India for processing Russian crude into much-needed global diesel supplies leaves Europe particularly vulnerable. Europe has become more dependent on fuel from further afield after direct imports from nearby Russia were banned [1].

US stockpiles of diesel’s family of fuels, used in everything from locomotives and trucks to power generation and heating, plunged to their lowest summer levels this century. While inventories should normally build over the summer, longer-term factors have made things more acute in recent years. A slew of plant closures in the US and Europe since the Covid-driven oil market crash has tightened supplies in key hubs. Even as high margins lead refiners like Phillips 66 and Valero Energy to maximize diesel output, US inventories have only recently inched past the critical lows seen in the summer of 2022, just after Moscow’s invasion of Ukraine [1].

After touching the equivalent of $110 a barrel following Israel’s air strikes on Iran, prices have retreated closer to $90. Diesel’s strength over the summer helped support crude prices while OPEC+ restored production faster than initially planned [1]. The spread between diesel and crude prices, known as a crack, is currently above $20 in Europe and around $30 in the US. Goldman Sachs expects both spreads to stay near current levels into 2026 "on continuing structural tightness in refining capacity," and TotalEnergies said stronger diesel prices will become a "persistent feature" of the global oil market [1].

OPEC+ announced on Aug 3, 2025, that it will increase oil production by 547,000 barrels per day (bpd) in September [2]. This marked the latest in a series of accelerated output hikes aimed at regaining market share amid rising concerns over likely supply disruptions related to Russia. The move represented a complete and early reversal of OPEC+’s largest production cuts, along with an additional increase allocated specifically to the United Arab Emirates. The shift amounts to about 2.5 million bpd, which is about 2.4% of global oil demand [2].

However, the U.S. Energy Information Administration's (EIA) latest Short-Term Energy Outlook (STEO) paints a stark picture of the distillate fuel market: production is projected to decline by 8% in 2025 and another 4% in 2026, driven by refinery closures, reduced refining capacity, and a shift toward renewable alternatives [3]. This decline, coupled with a slowdown in economic growth and the substitution of biofuels for petroleum-based distillates, is reshaping energy sector dynamics and creating fertile ground for sector rotation opportunities in both energy and automotive industries.

In conclusion, low diesel stockpiles globally are supporting crude prices despite OPEC+ output boosts. The tight supply and strong demand for diesel are likely to persist, potentially exacerbating the diesel shortage and supporting oil prices. US trade policies could further complicate the situation, leaving Europe particularly vulnerable.

References:
[1] https://financialpost.com/pmn/business-pmn/oil-traders-race-against-time-to-solve-a-global-diesel-crunch
[2] https://www.nasdaq.com/articles/opec-boost-oil-output-september-oil-etfs-under-pressure
[3] https://www.ainvest.com/news/eia-distillate-fuel-production-declines-sharply-sector-rotation-opportunities-energy-autos-supply-chain-shifts-2508/