Goldman Sachs has stated that diesel prices are likely to remain elevated through 2027, driven by constrained refining capacity, recovering demand, and government and corporate stockpiling efforts.
Nikhil Bhandari, co-head of Asia-Pacific natural resources research at Goldman Sachs, said on Monday: "We need to keep refined product prices high enough to sustain a certain degree of demand destruction next year." The bank believes that maintaining high diesel prices is a necessary measure to prevent recovering demand from overwhelming already-constrained refining capacity.
Goldman Sachs forecasts that the average crack spread for global diesel and jet fuel will exceed $40 per barrel in 2027, more than double the typical level of around $20. Meanwhile, Goldman expects Brent crude prices to stabilize around $80 per barrel as crude oil shipments through the Strait of Hormuz gradually recover.
Bhandari said: "If there is any demand rebound next year, the global refining system will have to operate at the highest utilization rates seen in the past two decades."
Baden Moore, a resources and energy analyst at CLSA, noted that the recent weakening in demand does not mean demand has permanently disappeared. Moore said in an email: "The underlying demand for refined products remains largely intact." He added that market buyers are effectively balancing the market through inventory adjustments, drawing down reserves, cutting consumption, and optimizing refinery production. He also noted that rebuilding global inventories while meeting existing demand could take up to two years.
Goldman Sachs said that a recovery in refined product demand could clash with a strained refining network. The bank expects refining capacity to continue its "negative growth" in 2026, with refining capacity in most regions projected to shrink by about 300,000 barrels per day.
In its "Global Refining Super Cycle" report published on September 21, Goldman Sachs estimated that refined product inventory days of cover could fall below the lowest level since 2015 by the end of 2026.
Bhandari said that about 2 million barrels per day of refining capacity in the Middle East remains offline, and damaged refining facilities in Russia are further limiting diesel supply. He added that U.S. refineries have been running at high utilization rates to offset the capacity decline, but will need to carry out long-delayed maintenance, which will temporarily reduce refining throughput. The recovery of crude oil exports from the Gulf region is not expected to significantly improve refined product supply, as outbound shipments of diesel, gasoline, and jet fuel remain constrained.
Bhandari's remarks came after the Group of Seven agreed on Friday to release 100 million barrels of crude oil and refined products over four months, including a "front-loaded large-scale release of diesel reserves" in the first 20 days. Following the news, European diesel futures fell 5.75%.
However, experts are skeptical that this additional supply can improve refined product supply and stabilize prices over the long term. Saudi Aramco CEO Amin Nasser said on Monday that emergency reserves "may help us get through one winter," but cannot solve the long-term supply problem.
Moore of CLSA said: "Emergency releases can only address liquidity issues, not inventory fundamentals." Reserve releases merely buy time and essentially draw down inventories rather than rebuild them, with subsequent restocking creating long-term demand.
Bernard Aw, chief Asia-Pacific economist at Coface, agreed, writing in an email that the impact of reserve releases is "only a short-term effect that does not change the fundamentals."
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