Global Diesel Squeeze to Drag Into 2027, IEA Says
The IEA warns that the global diesel shortage, exacerbated by geopolitical tensions like the Iran war, is likely to persist until 2027. This supply contraction, noted as a drop of 1.7 million barrels daily in Q3, could have significant implications for energy prices and broader economic stability. As diesel is a key input for transport and industry, sustained high prices may lead to inflationary pressures that central banks have to navigate carefully. This situation could compel currencies like the USD and EUR to react based on their respective energy dependency and economic resilience.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The IEA's projections align more closely with the upper targets, as firms like JPMorgan and ING similarly frame the potential price dynamics stemming from energy volatility.
How firms align
JPMorgan's outlook remains aligned, with a target of 1.10 for EUR/USD, suggesting confidence in a recovery driven by higher oil prices pushing the USD weaker. In contrast, BofA's lower target of 1.04 indicates a more conservative approach amid ongoing concerns about demand destruction from high energy prices stated in our internal reports.
What the data shows
Recent revisions show an uptick in energy forecasts, likely impacting near-term trading positions. For deeper insights, see our research on energy projections at /research/energy-outlook.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Global diesel shortages projected to extend to 2027, pushing energy prices higher.
- 02Watch for EUR/USD reaction as energy stays volatile.
- 03High diesel prices could catalyze inflation risks, impacting the USD's strength.
- 04BofA's lower target suggests cautious sentiment on currency movements.
Market implications
Traders should watch for signs of consumer behavior changes in response to rising energy costs, particularly around inflation reports. The EUR/USD is particularly sensitive now, trading near the consensus target of 1.075, with potential fluctuations as new data comes in.
Risks to this view
A peace settlement in the Iran war or alternative supply solutions could significantly reverse current projections, invalidating the bearish sentiment on the USD. Should diesel supply stabilize or recover unexpectedly, it would undermine the current supportive climate for euro appreciation.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.35
Sources & References
How we cover this story