Diesel, which accounts for the largest share of global refined fuel consumption, is defying expectations in 2025. Analysts had earlier predicted a supply glut following the start-up of several refineries worldwide. Instead, closures of older plants, especially in the U.S. and Europe, and a shortage of medium- and heavy-sour crudes—known for higher diesel yields—have kept inventories critically tight.
“Tight diesel inventories are providing a very strong floor to oil markets in the mid-$60 per barrel range in the short term,” said Natasha Kaneva, head of global commodities strategy at J.P. Morgan.
Diesel Shortages Supporting Crude Prices
Brent crude futures have rallied 15% since May, currently trading near $68 a barrel, after touching yearly lows during OPEC+’s initial rollback of supply cuts. Analysts say the diesel crunch has played a pivotal role in this rebound, giving producers the confidence to unwind production caps earlier than scheduled.
In the U.S., distillate inventories—mainly diesel—stood at 113 million barrels as of August 1, 12% below the five-year average. In Europe’s key Amsterdam-Rotterdam-Antwerp (ARA) hub, diesel stockpiles have slipped under 13 million barrels, the lowest since December 2023.
Cooling needs during record-breaking heatwaves and sustained industrial demand have also contributed to strong diesel consumption, adding to the supply pressure. These factors are pushing refining margins to levels not seen in months.
Refiners Enjoy Strong Margins
Refining profits—especially for diesel—have surged as supply remains constrained. In the U.S., ultra-low sulfur diesel (ULSD) futures recently traded at a $40 premium over U.S. crude futures in mid-July, the highest since February. While the spread has moderated to $31, it still exceeds the five-year average of $30.
European diesel margins remain healthy, reaching $21.13 per barrel over Brent crude as of August 5, after peaking at $26.31 in late June.
Asia, however, is showing early signs of margin weakness. Margins have fallen to around $17 per barrel, nearly erasing gains made since the escalation of the Iran-Israel conflict in June. Softening supply-demand dynamics in the region may indicate a temporary cooldown, but global fundamentals remain tight.
“If I were a trader, I would be very comfortable going long diesel in the months ahead,” said Tom Kloza of Turner, Mason & Co., underlining confidence in diesel’s outlook.
Structural Issues Cloud Future Supply
Heavy refinery maintenance across North America and Europe has further squeezed diesel output. The situation is exacerbated by structural issues such as ongoing refinery closures—particularly in California and parts of Europe—that have not been fully offset by new capacity, including Nigeria’s massive 650,000 barrels-per-day Dangote refinery.
Adding to the pressure, reduced diesel-friendly crude exports from Mexico and U.S. sanctions on Venezuela and Russia are further limiting global access to medium and heavy-sour crude grades. These constraints are likely to worsen if geopolitical tensions persist or intensify.
Energy economist Philip Verleger warns that U.S. foreign policy—especially under a second Trump administration—could deepen the diesel shortage. “The Trump administration’s trade policies and sanctions will be a major contributor to the tightening market,” Verleger said, noting that any resolution to ongoing U.S.-Asia trade disputes may prompt more American crude purchases—crude that yields less diesel when refined.
Still, macroeconomic risks remain. If U.S. tariffs and trade conflicts persist, they could dent global manufacturing and transportation demand, ultimately softening diesel consumption.
Outlook: Diesel’s Critical Role in Oil Markets
While the broader oil market grapples with rising OPEC+ output and geopolitical uncertainty, diesel remains the pillar propping up refining margins and crude prices. With inventories at multi-year lows and structural constraints persisting, refiners are enjoying a period of high profitability—but looming economic risks and supply challenges suggest that volatility will remain a central theme.
For now, however, diesel’s scarcity and critical role in powering industry and logistics appear poised to sustain its position as the market’s unexpected backbone—making it a key barometer for traders and policymakers navigating a complex energy landscape.