Goldman Sachs says diesel prices may need to stay elevated through 2027 because refineries can’t keep up with recovering demand. The bank’s co-head of Asia-Pacific natural resources research, Nikhil Bhandari, told CNBC’s “Squawk Box Asia” on Monday that high prices are needed to keep demand in check.
“We need to keep product prices high enough to have a certain level of demand destruction continuing next year,” Bhandari said.
The bank’s projections point to an average global diesel and jet-fuel crack spread — the extra charge refined products carry beyond crude — exceeding $40 per barrel in 2027, a figure that surpasses twice the typical level of roughly $20.
Refinery Capacity Is Shrinking
The bank predicts 2026 will mark another year of “negative refining capacity growth.”, with refining capacity outside China set to decline by around 300,000 barrels per day.
The bank’s global Refining Super Cycle report, released on September 21, projected that product inventories could close 2026 below the lowest days-of-supply level ever recorded since 2015.
Bhandari noted that roughly 2 million barrels per day of Middle Eastern refining capacity is still offline. On top of that, damaged Russian facilities have cut back on diesel supply. U.S. refineries are currently operating at higher-than-normal rates to cover lost capacity, though they will eventually need to carry out deferred maintenance that temporarily cuts output.
According to Baden Moore, a resources and energy research analyst at brokerage CLSA, restoring global inventories to match demand could require up to two years.
The Demand Picture
The hunt for recovered demand for finished goods stands to clash with a stressed system of refineries. Nations and firms alike are restoring drained stockpiles, placing added strain on a supply chain that is already stretched thin.
CLSA’s Moore said recent weakness does not necessarily represent permanently lost demand. “Underlying oil-product demand remains largely intact,” he said in an email to CNBC. Buyers have instead balanced the market through inventory management, reserve drawdowns, consumption curtailment and refinery optimization.
What the G-7 Release Does
Friday’s G-7 agreement involved releasing 100 million barrels of crude and refined products over four months, with a “front-loaded substantial diesel release” being released within the first 20 days. That announcement pushed European gasoil futures down 5.75%.
The added supply is not expected to do much for refined product availability or for tempering prices down over time.
“Emergency releases only solve a liquidity problem, not the underlying stock problem,” CLSA’s Moore said. The releases buy time, but mean inventories are being consumed rather than rebuilt, making restocking a longer-term source of demand.
Saudi Aramco CEO Amin Nasser said on Monday that emergency reserves “might buy us a winter” but cannot fix long-term supply.
Coface’s Asia-Pacific chief economist, Bernard Aw, acknowledged that the effect of such disclosures is indeed “temporary rather than structural.”.
The Numbers Behind the Forecast
- Goldman forecasts diesel and jet-fuel crack spreads averaging above $40 per barrel in 2027, more than double the usual $20
- Brent crude expected to stabilize at approximately $80 per barrel
- Refining capacity outside China contracting by roughly 300,000 barrels per day in 2026
- Product inventories could end 2026 below the lowest days-of-supply level recorded since 2015
- Roughly 2 million barrels per day of Middle Eastern refining capacity offline
- G-7 release: 100 million barrels of crude and refined products over four months
Goldman’s picture shows a market where supply is tight and demand is recovering. Inventories are low, and capacity is shrinking. The G-7 release offers only temporary relief.
Bhandari warns that a return to rising demand would force the global refining system to push utilization rates up to their highest point in the last two decades.
The real issue is whether the sector can keep going at its current speed without the flaws becoming visible.
Source material: “Goldman: Diesel prices set to stay high through 2027 as refineries struggle to meet demand,” CNBC.
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