Diesel Shortage Deepens, Threatening Inflation Shock

The global diesel shortage is intensifying, threatening to deliver a bigger inflation shock than the surge in gasoline prices. According to Goldman analysts, refined-product prices have remained nearly $50 higher than a year ago, with diesel contributing more than 40% of the $40-per-barrel increase since February.

The supply losses are concentrated in regions that produce high volumes of diesel and jet fuel, particularly the Middle East and Russia. These refineries have relatively high middle-distillate yields, while much of the disrupted crude supply involves heavier grades suitable for diesel production.

Seasonal demand should favor diesel as gasoline consumption weakens after summer and heating demand strengthens into winter. Global refined-product exports have declined by 6 million barrels a day, or 25%, from a year earlier, with the Persian Gulf and Russia responsible for three-quarters of the reduction.