The increase in diesel prices due to reduced deliveries from the Middle East and Russia has overshadowed the spike in oil prices, and refining is at the edge of capacity, the International Energy Agency (IEA) warned on Friday.
Oil prices in international markets surged above $105 per barrel on Thursday, but the increase in black gold pales in comparison to the rise in refined product prices due to an even more pronounced gap in supply and demand, the IEA noted in its regular monthly report published on Friday.
Thus, in the first half of the year, the price of a barrel of diesel in the U.S. market exceeded $200 per barrel and was nearly double what it was before the war in Iran, with Europe and Asia experiencing similar price increases, the agency pointed out.
The price of crude oil, on the other hand, increased by 45 percent during the same period, according to calculations by the IEA.
Disruptions in deliveries from the Gulf region and Russia have catapulted oil product prices, they added.
According to current estimates by the IEA, Gulf countries exported about 13 million barrels of oil per day in August, which corresponds to about 54 percent of pre-war levels, thanks in part to rerouting deliveries through alternative routes.
Deliveries of oil products and liquefied petroleum gas have been reduced to approximately 40 percent of pre-war levels, the IEA noted.
Net diesel exports were reduced in August to just a quarter of pre-war levels, averaging 390,000 barrels per day, they calculated.
Market losses have also been deepened by disruptions in the Russian refining system and the near-total halt of oil product exports following Ukrainian drone attacks on refineries, the IEA emphasized in its report.
In such conditions, the combined net diesel exports from the Gulf region and Russia were 1.6 million barrels per day lower in August than in February, when their products accounted for nearly 45 percent of global maritime trade.
This loss is somewhat mitigated by other regions where refineries are pushing processing to the limits to take advantage of exceptionally high margins.
Refinery margins in the Atlantic Basin have thus surged to record levels, the IEA noted.
Destruction of Demand?
Significantly reduced deliveries and high prices are stifling consumption, and thus demand for oil is expected to decrease by 2.5 million barrels per day this year, the agency estimates, raising its August forecast by nearly one million barrels.
The pace of demand weakening is expected to slow towards the end of the year, with a projected decline of 3.4 million barrels per day in the third quarter. In the second quarter, it plummeted by 5.3 million barrels per day.
In the last three months of this year, global demand is expected to weaken by two million barrels per day, according to IEA experts.
So far, stocks have played a key role in balancing the market, they note. Since the beginning of the war, global oil stocks have fallen by 507 million barrels, according to IEA data, which corresponds to a volume of 2.8 million barrels per day.
In August alone, global stocks were reduced by as much as 95 million barrels, or 1.3 million barrels per day, the IEA states.
As stocks deplete and the global refining system is burdened to the limits, progress in resolving conflicts in the Middle East and the Russia-Ukraine war is more necessary than ever to avoid even more significant supply thinning and demand destruction, the IEA warns.
