Why Cheaper Oil No Longer Means Cheap Diesel

Market Monday - Week 45 - Deindustrialization and fragile supply chains work against oil market momentum

Almost everyone would prefer a reduced reliance on fossil fuels and increased use of alternative energy sources for road transportation in the EU. However, the reality of high equipment and capital costs, coupled with human inertia, leaves a lasting impact. The overwhelming adoption of new traction technologies over the old, proven diesel trucks remains more of a wish than a reality. This means that by analyzing global trends and local developments affecting oil and diesel markets, we can still understand how a significant portion of transportation costs will evolve in the future.

The global oil market is now sending bearish signals, as prices have been heading down. A consensus among forecasters suggests a significant crude oil surplus will persist into 2026, driven by increasing oil production and weak global demand. Major agencies like the U.S. Energy Information Administration (EIA) and the World Bank project that Brent crude, the key international benchmark, will continue its slide from an average of around US $68 per barrel in 2025 to the $52-$60 range in 2026 (a 12% to 24% drop YoY). This downward pressure comes from the rising output in non-OPEC countries, alongside the gradual unwinding of previous production cuts by the OPEC+ alliance, now trying to keep its market share.

This supply meets a world market where consumption is weak. Global oil demand growth is forecasted to be subdued, hampered by a depressed macroeconomic climate and increasing adoption of electric vehicles. In Europe, this trend is even more pronounced, with the IEA forecasting an oil demand decline of around 90,000 barrels per day in 2026. Logically, a global oversupply of crude oil combined with falling local demand should translate directly into significant savings. For any industry reliant on fuel, this would normally be welcome news.

However, for the market players in Europe, this global trend is only half of the story. The price you pay for diesel is becoming increasingly disconnected from the price of crude, thanks to European pressures with diesel imports, where US and Middle East supply replaced Russian-sourced fuels. This network is fragile, with multiple legs involved and lead times of 3-6 weeks, and it embeds a permanent “risk premium” into every liter of imported diesel, leaving European prices highly vulnerable to distant geopolitical events, shipping disruptions, or refinery outages in supplier regions.

This regional tightness is clearly visible in the refining margins, or “crack spreads,” which represent the premium for turning a barrel of crude into diesel. Despite falling crude prices and weak economic indicators, European diesel crack spreads have remained stubbornly high, signaling a market that is structurally short of product. Despite the rising role of imports, Europe’s own domestic production capacity is eroding as well, with major facilities being shut down or repurposed, like BP plant in Gelsenkirchen, Eni’s Livorno refinery, Shell’s Wesseling refinery and Petroineos facility in Grangemouth all undergoing major shifts in 2025 alone. That’s why the estimates say that within the next 3-12 months, diesel prices in Europe will not fall as much as the oil prices would suggest, or won’t fall at all.

The “diesel premium” in Europe is a structural and persistent phenomenon. While the overall price trend may be downwards, mirroring the global crude market, the volatility and reliance on imports will make sharp price spikes unavoidable, driven by world events and local supply constraints. Looking further ahead, the pressure is only set to increase, with the EU’s new carbon pricing mechanism (ETS2) promising to add another permanent and escalating layer of cost to road fuels from 2027. The silver lining is that while the market still carries a lot of old-time inertia, the green transition won’t be derailed by the downward spiral of diesel prices.

Oleksandr Kulish
Senior Consultant