Citi: Middle East and Russian Diesel Exports Both Contracting, Global Shortfall May Reach 1 Million Barrels/Day
nashnova research
Citi estimates Middle East and Russian diesel exports are shrinking simultaneously; combined with refinery outages, the global diesel supply gap could reach 1 million bpd this year — and whether it narrows hinges on when the Strait of Hormuz reopens.
How far has diesel jumped — and how does it compare with crude?
U.S. retail diesel has climbed from roughly $3.4/gallon at the start of the year to about $6.5/gallon now. Both diesel and heating-oil prices are near 55-year highs.
The diesel crack spread — the extra margin a refinery earns turning crude into diesel — surged from about $25/barrel to $89/barrel, while WTI crude rose only about $25/barrel over the same period.
This means → the shock is concentrated in refined products: crude supply is not the bottleneck — finished diesel is.
Where is the gap coming from — who is exporting less, and who is shutting down?
Citi estimates Middle East diesel exports may have fallen by roughly 500,000–1,000,000 bpd, and Russian exports by roughly 300,000–600,000 bpd.
Unplanned refinery outages in August knocked out an estimated 3–4 million bpd of refined-product capacity worldwide. Export losses and refinery shutdowns happened at the same time, amplifying the gap.
In plain terms = two links in the supply chain broke at once — producing countries can't ship diesel out, and refineries themselves are producing less.
Can inventories hold up?
Citi projects global diesel stocks will draw down by roughly 200–250 million barrels this year, yet visible primary inventories have fallen by only about 50–70 million barrels.
This means → much of the drawdown is happening at the end-user level — gas stations, factory tanks — the closer to the consumer, the tighter the supply.
Total disclosed global diesel inventory stands at roughly 1 billion barrels, of which about 200 million are held by European governments and about 400 million are OECD commercial stocks.
What cards can governments play?
Citi believes that if diplomacy fails, European government reserves could be released as late as after the U.S. midterm elections.
Washington may also consider restricting diesel exports, but a full ban is seen as unlikely — even a partial curb would strand large volumes along the Gulf Coast and quickly overwhelm local storage capacity.
In plain terms = an export ban sounds straightforward, but diesel piling up at ports with nowhere to go creates a new problem instead of solving the old one.
Strait of Hormuz reopening — the make-or-break variable?
Citi's base case: shipping through the Strait of Hormuz returns to normal in Q4 2026, with a cumulative probability of about 70% across various reopening paths — including a 10-percentage-point chance of a rapid deal.
Under that assumption, Brent crude is expected to fall back to $65–70/barrel in 2027. An alternative scenario — oil-product tightness persisting into 2027 — carries an indicative probability of roughly 30%.
Citi's key watchlist going forward: Hormuz transit volumes, Middle East and Russian diesel exports, and the diesel crack spread — all three must improve in tandem, or the normalization path will need to be reassessed.
What does Citi's oil-price roadmap look like?
Brent price targets already embed the Hormuz-reopening assumption: $75/barrel over 0–3 months, $70/barrel over 6–12 months, and $66/barrel for 2027.
This reflects Citi's view that the supply bottleneck is temporary — once the strait reopens, prices should glide lower along a downward slope.
But if shipping through Hormuz stays disrupted, every number on that price path will need a full reset.
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