Oil refineries worldwide are proving powerless to produce enough diesel, opening a new front in inflation and depriving economies of fuel that powers industry and transportation.

On Thursday, U.S. prices surged past $140, the highest level for the year. The European equivalent has risen by 60% since summer.

And the situation could worsen. Saudi Arabia and Russia have curbed production of high-diesel content oil.

On September 5th, both countries, leaders in the OPEC+ alliance, announced that these restrictions would be extended until the end of the year, a period when demand for this fuel typically increases.

“We’re at risk of continued tightening, especially in distillates, with the coming of the winter months,” said Toril Bosoni, head of the International Energy Agency’s oil market division, referring to the fuel category including diesel. “Refineries are struggling to keep up.”

This situation poses a challenge for the global fleet of refineries, which has been grappling with insufficient production for several months.

The summer heat in the Northern Hemisphere this year forced many facilities to operate more slowly than usual, leaving supplies constrained.

Furthermore, there has been pressure on them to produce other products, such as aviation fuel and gasoline, where demand has sharply increased, according to Callum Bruce, an analyst at Goldman Sachs Group Inc.

All of this comes at a time when the global refining system has shut down less efficient operations after the COVID-19 pandemic decimated demand. Consumption is now on the rise, but many refineries are no longer available.

There is still hope that the diesel crisis may ease. With the approach of the cold winter months, weather-related constraints on refineries usually diminish—although some of them undergo routine seasonal maintenance.

Source: Reuters.com