IEA requests review of need for additional diesel emissions due to supply pressure ahead of winter due to decline in exports to Middle East and Russia... Check response at board meeting on the 15th
It is predicted that the price burden due to disruption in diesel supply may continue until next year. This is because even if oil refinery operations recover, it will take time to fully replenish the inventory exhausted this year. Prolonged uncertainty in the supply of fuel used in transportation and production could also put a burden on business costs and consumer prices.
According to the October oil market report released by the International Energy Agency (IEA) on the 14th, net exports of diesel and gas oil from the Middle East and Russia last month decreased by 1.3 million barrels per day compared to the same month last year. Increased exports from the United States and China made up for part of the decrease, but overall global exports also decreased by about 700,000 barrels per day. As supply continued to decrease, inventory also decreased ahead of winter. The IEA predicted that inventory recovery beyond the normal seasonal increase would be difficult before the second half of next year.
In this situation, if demand for heating increases in winter, the supply burden may increase. The U.S. Energy Information Administration (EIA) explains that heating oil and diesel are similar petroleum products, so changes in demand for one can affect the price of the other. The increase in demand for heating oil in the fall and winter could also put pressure on the diesel market. When inventory is low, there is a possibility that price fluctuations may increase if oil refinery facilities break down or import delays occur.
Supply instability is already reflected in prices. According to the IEA, the wholesale price of diesel in Singapore exceeded $200 per barrel in mid-September, and in Europe and the United States, it reached an all-time high of about $220. At the time of writing the report, although it was lower than the September high, the standard price of diesel was still close to twice the price of crude oil. The IEA analyzed that high diesel prices are raising product costs and affecting real income, economic activity, and prices. If increased fuel costs are reflected in freight rates, the cost burden on shippers and distributors may increase.
Each country is responding by rushing to supply oil reserves. The IEA announced on the 7th that member countries expressed support for speeding up the implementation of the joint emission plan in March and providing priority supply of diesel to the extent possible. The approximately 100 million barrels suggested by the IEA at the time was the amount if all the volume promised to be released in March but not yet supplied to the market was released.
The need for additional emissions was also subject to review. According to a statement released by the IEA on the 11th, Director-General Fatih Birol asked all member countries, including those that have met existing commitments, to assess whether additional diesel emissions are necessary. If additional supply is deemed appropriate, the size, timing, and whether the amount is in addition to existing promises must be presented. The IEA plans to review this response at its board meeting on the 15th.
The sustainability of supply and demand stability thereafter will depend on the speed of production recovery and inventory accumulation. IEA predicted that the supply of diesel and gas oil will exceed demand and inventory will increase due to increased refining production in the first quarter of next year. However, the increase in inventory at this time was expected to remain at the normal seasonal level and would not be enough to make up for the accumulated decrease this year. The IEA believes that tight supply and demand will continue for a considerable period of time next year, and selected the recovery of the supply of petroleum products from the Middle East as a key condition for alleviating this.
