While most energy prices have fallen since the start of the year, gasoil is proving to be a surprising exception.
Despite Brent crude oil being 14% cheaper, the next-due gasoil contract on the Intercontinental Exchange is currently trading at just under $750 per ton, marking a 7.5% increase since January.
Accordingly, the gasoil crack spread has risen sharply and, at over $30 per barrel, is at its highest level since February 2024, Commerzbank AG said in a report.
The strength of gasoil relative to other products is attributable to both supply and demand factors, with demand proving to be a positive surprise this year.
Source: Commerzbank Research
Fundamentals support gasoil
The International Energy Agency (IEA) has consistently raised its forecast for gasoil demand growth, which is now expected to increase by 270,000 barrels per day—nearly a fourfold increase from its January expectation.
This contrasts with the IEA’s significantly lowered expectations for overall global oil demand.
“The upward revisions for gasoil demand (not least as a result of very low prices until the summer) have added up in various regions,” Barbara Lambrecht, commodity analyst at Commerzbank, said.
Higher demand is meeting with tighter supply because numerous sanctions and production losses – especially on the Russian side – are causing tension.
Sanctions against Russia’s two oil companies could place up to 350,000 barrels of oil exports from the country under scrutiny, according to an analysis from Vortexa.
Upcoming changes may further impact demand, as an EU import ban on diesel produced using Russian oil is set to take effect on January 21 next year, potentially increasing demand in the period leading up to that date.
Contributing to market tightness, commercial stocks of middle distillates in OECD countries were below the five-year average during the summer.
Market nervousness is particularly high because industrialised countries in the Northern Hemisphere are just starting their winter.
This is compounded by the fact that the US, specifically, has a significant deficit in stock levels compared to the typical start of the heating season.
Refined products push oil higher
The oil market’s recent strength is rooted in refined products, as evidenced by the sharp rise in gasoline and gasoil cracks due to supply worries, Warren Patterson, head of commodities strategy at ING Group, said in a note.
Continued Ukrainian drone attacks on Russian refineries are a concern for the market, particularly middle distillates.
Concerns about the broader product markets are compounded by the impact of US sanctions on Lukoil and Rosneft, specifically regarding what these sanctions signify for refining assets located outside of Russia.
“While the outlook for oil is bearish, the strength in the refined products market is proving to be a significant obstacle,” Patterson added.
Sanctions continue to create significant uncertainty regarding Russian crude oil flows.
Ship tracking data shows that the pace of these flows has recently decelerated, with the 4-week average now at its lowest point since mid-September.
Gasoil market to ease in 2026
“However, we still expect the (gasoil) market to ease next year: according to the IEA, global demand growth is set to almost halve, primarily due to OECD countries,” Commerzbank’s Lambrecht said.
Outside the OECD, however, the increase is likely to be roughly the same as in the current year – although China’s demand for diesel is unlikely to rise much next year.
New sales routes are likely to emerge to bypass sanctions.
Furthermore, the substantial rise in the crack spread is expected to result in (comparatively) higher diesel production and, consequently, increased diesel exports from the US, India, China, and the Middle East.
“We therefore expect the gasoil price to fall back to USD 600 per ton over the course of next year,” Lambrecht said.
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