The most severe supply squeeze in global oil markets is currently concentrated in diesel, as worldwide refining activity has dropped to its lowest level for this time of year since the 2020 pandemic, according to Goldman Sachs.

War-driven refinery outages across the Middle East and Russia have sharply reduced global fuel supply, with diesel hit especially hard. Increased refining output in the Americas and Africa has offset only roughly one-third of the lost supply, Goldman Sachs commodity analysts wrote in a research note reported by Bloomberg.

Diesel sits "at the epicenter" of the fuel supply crunch, the Wall Street bank stated. Diesel, along with jet fuel and heating oil, is classified as a middle distillate — a category of refined petroleum products derived from the middle boiling range of crude oil. These fuels are foundational to freight transport, industrial production, agriculture, and heating, meaning prolonged supply tightness can ripple across supply chains and contribute to elevated transportation and manufacturing costs.

In July, global refining throughput fell by as much as 6.5 million barrels per day (bpd) compared with July 2025, driven by reduced Chinese refining run rates and prolonged outages at facilities in the Middle East and Russia. For diesel specifically, global exports declined approximately 35%, equivalent to about 2.6 million bpd, based on Goldman Sachs estimates.

As a consequence, middle distillate markets continue to tighten, with inventories running below seasonal averages. This dynamic creates conditions for further market tightening if additional supply disruptions occur, the investment bank cautioned. The shortfall comes at a time when diesel demand typically remains steady year-round due to its heavy use in commercial trucking and industrial activity, leaving less room for seasonal demand softness to absorb supply shocks.

The refined product market has been tightening even as crude oil markets have experienced extreme volatility over the past five months. Refining margins have climbed to record highs because the supply of petroleum products is substantially tighter than crude supply. These record margins persisted even as crude oil prices surged to $100 per barrel last week.

The tightening of global gasoline, diesel, and jet fuel supply has persisted for months, driven primarily by factors stemming from the ongoing wars in Iran and Ukraine.

In a rare public statement last week, Fatih Birol, Executive Director of the International Energy Agency (IEA), said: "Refinery activity and product supplies have not picked up as much as crude deliveries, meaning that markets for refined oil products, including diesel and gasoline, are considerably tighter than those for crude." The statement was published by the IEA.

Source: OilPrice.com