Europe could be scrambling for diesel supplies over the winter, with the continent increasingly exposed to “exceptionally tight markets,” warned the International Energy Agency (IEA).
The Paris-based climate group revealed diesel prices surged to record highs last month, 70 per cent higher than this time last year, dwarfing even the historic gains in crude oil.
Diesel is currently priced 425 per cent higher than Brent Crude, which rose 11 per cent over the same 12-month period and has been subjected to OPEC measures to tame prices.
This was creating further tensions in the economy, and reflected both resilient demand and concerns over supply shortages.
“High diesel prices are fuelling inflation, adding pressure on the global economy and world oil demand,” said the IEA.
It predicts that when an EU embargo on imports of diesel and other refined products from Russia is implemented in February, the European market will tighten further.
This is because the competition for non-Russian diesel barrels will be fierce, with EU countries having to bid supplies from the US, Middle East and India away from their traditional buyers.
The IEA said: “Increased refinery capacity will eventually help ease diesel tensions. However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear.”
By October, EU countries had reduced Russian crude oil imports by 1.1 m barrels per day (mb/d) to 1.4 mb/d, and diesel flows by 50 kb/d to 560 kb/d.
When the crude and product embargoes come into full force in December and February, respectively, the IEA expects an additional 1.1 mb/d of crude and 1 mb/d of diesel, naphtha and fuel oil will have to be replaced.
Diesel prices have been rising upwards for much of the year.
The IEA highlighted that the fuel is not only a staple of economic activity, and that supplies have dwindled amid French refinery strikes last month and upcoming embargoes propelling diesel prices in Rotterdam, Europe’s main trading hub.
Lower Chinese product exports also tightened the market, with the country’s economy rattled by its exhaustive zero-Covid approach to the pandemic.
Europe has already been grappling with the possibility of gas shortages, racing to top up storage levels to 95.6 per cent of capacity ahead of winter – with multiple EU nations engaged in rationing measures.
Meanwhile, National Grid in its winter outlook has warned of blackouts as a worst-case scenario in the UK this winter.