Goldman Sachs Group has intensified its warning about tightening global refining markets, citing ongoing Middle East conflicts and the Russia-Ukraine war that continue to disrupt refined product flows. The bank has more than doubled its forecast for diesel production margins from previous estimates.
An analyst team including Yulia Zhestkova Grigsby and Daan Struyven stated in an August 28 report that increased attacks on refining facilities in the Middle East and Russia are adding further pressure to already stretched global refining capacity, pushing refined product crack spreads to new highs. Diesel remains at the core of this rally, the report noted.
Unplanned refinery outages worldwide are currently running 60% above seasonal averages, and refined product inventories continue to decline despite some demand destruction already occurring. Goldman Sachs now projects average US diesel refining margins versus Brent crude at $63 per barrel next year, with EU margins at $49 per barrel, significantly higher than the previous forecasts of $27 and $19 respectively.
The global market faces a fuel supply crisis, with refined products like gasoline outperforming crude oil in price gains. Russia's extension of diesel export bans through September, combined with recovering demand from Brazil, the world's second-largest importer, is expected to further exacerbate supply tightness. Seasonal demand for heating oil will also rise as winter approaches in the Northern Hemisphere.
The Goldman analysts also noted that while Persian Gulf crude exports may have recovered to 70%-80% of pre-war levels, refined product shipments have only recovered to 40%. They added that full recovery of refinery operations depends on an overall cooling of global geopolitical tensions.
In futures markets, Brent crude has risen nearly 50% year-to-date and is trading near $91 per barrel amid fresh turmoil in the Middle East, while European diesel futures prices have more than doubled.
Goldman Sachs has repeatedly warned about tightening refined product markets in recent months. In March, the bank pointed out that conflicts between Iran and the US would have a far greater impact on fuel markets than on crude itself. Earlier this month, the bank again emphasized the impact of Ukrainian attacks on Russian energy infrastructure.
Shell CEO Wael Sawan stated last week that refined product markets are suffering from a "triple threat" comprising attacks on Russian refineries and shipping risks in the Persian Gulf and Red Sea. Meanwhile, TotalEnergies CEO Patrick Pouyanne noted that while some crude oil tankers can still pass through the Strait of Hormuz, no refined products are getting through.