Journally Speaking: Gasoil storm

March 6, 2023
Global gasoil supply-demand balances tightened in 2021 and 2022 following a surge in inventories caused by the pandemic in 2020, with shutdowns and thin margins reducing refinery activities.

Global gasoil supply-demand balances tightened in 2021 and 2022 following a surge in inventories caused by the pandemic in 2020, with shutdowns and thin margins reducing refinery activities. In 2022, collective Organization for Economic Co-operation and Development (OECD) industry and government inventories fell to their lowest levels since second-quarter 2008, driving up record price premiums to crude. Tensions have eased recently due to factors such as slower gasoil demand growth, the commissioning of new refineries, and higher yields from non-Russian countries, especially China.

Data from International Energy Agency (IEA) shows that, after a recent build, current global gasoil inventories are close to levels seen at end-2019. While gasoil price premiums over crude have narrowed significantly since October 2022 as French refineries came back online from strikes, they remain high compared with historical values despite European Union embargoes having not yet affected Russian gasoil exports.

Russian gasoil supply

Persistently high premiums point to market uncertainties. It is still unclear how the EU’s embargoes and price cap on Russian oil products, which went into effect in early February, will affect trade flows and reshape market balances.

Europe has been the center of Russian gasoil trade flows, accounting for 60% of the country’s total gasoil exports. Now, as Europe seeks alternate sources of imports from the Middle East and East Asia, cargoes flowing from Russia to the EU are also finding new destinations. Since December 2022, some 250,000 b/d of Russian gasoil exports to Western Europe have shifted to North Africa, the Middle East, and West Africa.

However, questions remain about where the displaced Russian gasoil may go and the extent to which Russian refiners may be forced to cut output as trade flows are reoriented. Russia could struggle to export more gasoil to non-European destinations under the European sanctions in place. Higher exports to Africa and Latin America may be limited by the dominance of European or US linked companies in product retailing, IEA noted.

Meantime, vessel capacity issues have begun to weigh on Russia’s ability to maintain its seaborne flows as short-haul shipments turn into longer-haul ones. Russia’s state-owned fleet, combined with its much-talked-about “shadow fleet,” may not be able to support such a shift in trade flows.

Some Russian production will have to shut down as a result. Preliminary forecasts from the IEA suggest that Russian gasoil exports could fall to 600,000 b/d in first-quarter 2023 from about 900,000 b/d in January 2023 and to 400,000 b/d in second-half 2023.


Global refining capacity is expected to increase by a net 1.6 million b/d from fourth-quarter 2022 to fourth-quarter 2023. While crude runs fall in Russia, they will rise in the Atlantic Basin and East of Suez, driven by new refinery projects in the Middle East and China. Overall, world throughput will increase by 1.8 million b/d in 2023, following an increase of 2.2 million b/d in 2022. However, higher global runs will only lift gasoil supply slightly as refinery yields shift to jet-kerosene.

Slow growth in demand may be a shock absorber to some extent. Global gasoil demand growth is expected by IEA to slow from 1.6 million b/d in 2021 and 700,000 b/d in 2022 to 100,000 b/d in 2023 due to slower economic growth and high prices. OECD demand will fall slightly in 2023, due to slow industrial activity and reduced gas-to-oil switching. Non-OECD gasoil use will increase, especially in China

and India.

IEA believes that the market could accommodate a 50% cut in Russian gasoil exports but not a complete removal due to global refinery capacity limits. If the remaining Russian gasoil exports are lost or are locked up on the water, gasoil supply can’t match demand and prices will rise to clear the market.