The price of oil is once again in the eye of the storm. Futures contracts for the benchmark crudes, Brent and WTI, were trading above $90 per barrel this week, and some analysts predict they could exceed $100 in the near future. But one of oil’s most important derivatives, diesel—which is key to freight transportation—faces an even more complex market. 

Early last week, the price of diesel in the United States exceeded $140 per barrel for the first time this year. In Europe, meanwhile, the price of diesel has risen 60% since the summer.

One of the factors behind the rise is the restrictions on the production of distillate-rich crude oils —from which diesel is derived—produced by Russia and Saudi Arabia, which both countries will maintain at least through the end of the year, as they announced in early September. 

Added to this is a reduced supply from refineries worldwide. Refineries in the Northern Hemisphere had to scale back operations during the summer due to high temperatures and were also under pressure to produce other types of fuels, such as jet fuel and gasoline, due to a sharp increase in demand. This comes against a backdrop in which the global refinery fleet has shrunk following the closure—during the pandemic—of the least efficient units, whose operators are reluctant to bring them back online.

Russia, still a major supplier of diesel despite international sanctions over the invasion of Ukraine, has announced that it will limit the volume it sends to global markets. China, meanwhile, has announced new fuel export quotas, but analysts believe this will not be enough to prevent a tight market toward the end of this year.

In addition, inventories are at their lowest levels in a long time.

Not everyone agrees that the market will be as tight as feared. They point out that, with the arrival of fall and cooler temperatures, refineries in the Northern Hemisphere will be able to lift the operational restrictions they were forced to implement during the summer. 

After all, the current tightness in the diesel market is due to supply constraints. Demand has not grown as strongly as that for other fuels, such as gasoline, jet fuel, and kerosene.

One of the main concerns raised by the current diesel market is its effect on inflation, given the importance of this fuel in product distribution chains.