November 15, 2022 [Reuters] – The International Energy Agency (IEA) on Tuesday forecast a small decline in diesel and gasoil demand next year as persistently high prices stoke already high inflation rates and hit economic activity.
“High diesel prices are fuelling inflation, adding pressure on the global economy and world oil demand,” the IEA said in its monthly oil market report.
Diesel is the backbone of economic activity with uses spanning powering factories to heating homes and fuelling vehicles.
Global demand for diesel and gasoil is forecast to fall to 400,0000 barrels per day (bpd) this year, from 1.5 million bpd in 2021, before contracting slightly next year, the IEA said.
Supply in diesel markets has been extremely tight in recent years, with global inventories trending well below average.
An EU embargo on Russian crude and oil products in the coming months and a ban on maritime services is expected to tighten markets further, with the EU having to replace about 1 million bpd of Russian diesel, naphtha and fuel oil, the IEA said.
The COVID-19 pandemic and resulting collapse of fuel demand led to about 1 million bpd of net refining capacity loss, which partly explains the tightness, the IEA said.
Russia’s invasion of Ukraine in February and French refinery strikes last month tightened the market further, pushing diesel profit margins to record highs above $80 a barrel, the agency added.