Kuala lumpur: Diesel prices are rising faster than petrol due to structural supply constraints, sustained industrial demand and limited flexibility in refining systems, according to energy research firm Rystad Energy.
According to BERNAMA News Agency, Vijay Krishnan, managing director for Asia Pacific at Rystad Energy, explained that global markets are facing a diesel shortage driven by its critical role in transportation, manufacturing, and industrial activity, which keeps demand resilient even during periods of disruption. He made these remarks at the conclusion of the three-day Offshore Technology Conference Asia (OTC Asia), an event focusing on advancing offshore resources, technology, and sustainability.
Vijay noted that the imbalance is exacerbated by the structure of Asia's refining system. Many facilities are configured to process medium and heavy sour crude typically sourced from the Middle East, limiting the refineries' ability to switch to lighter grades when regional supply is disrupted. This situation constrains the output of key refined products like diesel.
Supply shocks in the Middle East, Vijay said, are transmitted directly into product markets, with the impact most visible across diesel, liquefied petroleum gas (LPG), and naphtha in Asia. The disparity between diesel and petrol prices is further driven by the scale of global diesel demand, especially from industrial activity and freight transport across Asian economies, including Malaysia.
Diesel demand remains consistently strong due to its role in supporting economic output, making it challenging for supply to keep pace during disruptions. Vijay added that LPG markets face even sharper pressures in some scenarios.
He mentioned that even if a ceasefire scenario were expected by mid-April, the reopening of key transit routes like the Strait of Hormuz would take time, prolonging tight market conditions. Elevated shipping and insurance costs, particularly for vessels transiting the Strait of Hormuz, are embedding a higher cost structure into global energy trade.
Vijay emphasized that these added costs, combined with gradual recovery in production and logistics, are expected to keep energy prices elevated for an extended period, potentially stretching into 2027. A prolonged disruption, such as a 30-day closure of the Strait of Hormuz, would significantly impact refinery operations globally as feedstock flows and product supply chains tighten.
The impact extends beyond fuels to a broader range of commodities, including helium, ammonia, and urea, affecting manufacturing processes and agricultural supply chains. Governments and refiners are prioritizing diesel and LPG production due to their industrial importance, often at the expense of petrol supply.
Countries like Indonesia are likely to experience greater pressure if disruptions continue beyond the current scenario. Malaysia has managed the situation through fuel price adjustments, but continued policy adjustments will be necessary if supply disruptions persist. Vijay cautioned that if the conflict extends beyond expectations, it could surpass the economic disruption seen during the COVID-19 pandemic, underscoring the need for governments to stay on a calibrated policy path while preparing for more severe supply constraints.