Goldman Sachs has warned that global refining capacity is under heavier strain as conflict in the Middle East and the Russia-Ukraine war continue to disrupt supply, according to Bloomberg. The bank has raised its 2027 diesel refining margin forecast by more than double.
Analysts said a rising number of attacks on refineries in the Middle East and Russia has further constrained a refining system that was already tight. That has pushed refined product margins to new highs, with diesel at the center of the current energy price surge.
Goldman lifts 2027 diesel margin forecast
Refining margin refers to the gap between the value of refined products and the cost of crude oil, a direct gauge of profitability for refiners.
Goldman now expects the average refining margin in 2027 for turning Brent crude into a barrel of diesel to reach $63 in the United States and $49 in the European Union. In February, the bank had forecast $27 for the U.S. and $19 for the EU, meaning both estimates were revised higher by more than 100%.
The analysts also said global refinery outages are running about 60% above normal seasonal levels. Even though demand has softened slightly, inventories of refined products continue to decline.
Crude exports recover faster than refined products
According to Goldman, crude exports from the Persian Gulf may have recovered to 70% to 80% of pre-war levels, while refined product exports are only at 40% of pre-war volumes.
On a year-over-year basis, global crude exports are down about 10%, but diesel exports are down 22%. The bank said the divergence has driven a sharp split in pricing and refining margins. Analysts added that a broader recovery in refinery operations would require a cooling of geopolitical tensions worldwide.
Russian export curbs and Middle East damage add pressure
Goldman said Russian refineries continue to face drone attacks from Ukraine, tightening domestic fuel supply. Russia’s diesel export ban has been extended through the end of September, while export restrictions on diesel and gasoline by non-producers remain in place until the end of January 2027.
At the same time, several Middle Eastern refineries have been damaged in conflict involving the United States, Israel and Iran. The Northern Hemisphere is also approaching winter, which points to stronger heating demand.
The report said European Union climate rules pushed energy companies to close refining capacity early in anticipation of weaker demand. That decline has not appeared so far, leaving Europe short of refining capacity when it is most needed.
Shell and TotalEnergies issue similar warnings
Shell Chief Executive Officer Wael Sawan said last week that refined fuel markets are facing a "triple threat": attacks on Russian refineries, shipping risks in the Persian Gulf, and the Red Sea shipping crisis.
TotalEnergies Chief Executive Officer Patrick Pouyanné said that while some crude tankers have been able to pass through the Strait of Hormuz, no refined products have been shipped out.