Refiners are positioned to reap substantially stronger profits from the global diesel shortage, Goldman Sachs has said, doubling its earlier profit forecast for what refining companies stand to earn from the squeeze.

"Rising strikes on refineries in the Middle East and Russia have further constrained already-stretched global refining capacity, pushing refined-products margins to new highs," the bank's analysts wrote in a note, as quoted by Bloomberg. "Diesel remains at the epicenter of the rally," they added.

Global diesel stocks are running low as a result of refinery damage in the Middle East and Russia. According to Goldman's commodity team, refinery outages are currently running 60% above the seasonal average, and the tightness in diesel supply is expected to extend into next year.

Fuel exports from the Persian Gulf are running at roughly 40% of pre-war levels, the analysts also noted, compared with an estimated 70-80% for crude oil exports.

On the basis of these conditions, Goldman now expects diesel refining margins to reach $63 per barrel in the United States in 2027, while refiners in the European Union are seen averaging $49 per barrel. This represents a significant increase from the bank's earlier forecast of $27 per barrel for U.S. refiners and $19 per barrel for EU refiners.

In Europe, the situation is further complicated by a structural shortage of refining capacity. EU climate regulations pushed energy companies to shut down refining capacity in anticipation of demand destruction that has yet to materialize, leaving the region with fewer refineries.

Meanwhile, several refineries in the Middle East have suffered damage amid the U.S. and Israeli war with Iran, and Russia has imposed a diesel export ban in response to production constraints caused by Ukrainian drone attacks. Moscow recently extended the diesel export ban until the end of September.

Refinery margins are running at record highs across the world as the energy crisis unfolds. In the United States, the crack spread — the difference between the price of refined products such as diesel and the crude oil they are made from, a standard gauge of refining profitability — reached three digits for the first time ever earlier this month.

The squeeze matters well beyond the refining industry: diesel powers trucks, ships, farm equipment, and industrial machinery, so sustained high prices feed into freight, agriculture, and manufacturing costs. Tight diesel markets also tend to draw scrutiny from governments, as fuel supply shortfalls have historically prompted policy responses such as export restrictions and strategic reserve releases. For now, the tightness Goldman describes is set to run into next year, and the durability of these record margins will depend on how quickly damaged refineries return and whether the Russian export ban is allowed to lapse at the end of September.

Source: OilPrice.com — By Irina Slav