Goldman Sachs Group Inc. has intensified warnings about constraints in the global oil refining market caused by wars in the Middle East and Russia's invasion of Ukraine. The bank more than doubled its forecasts for diesel fuel production profits, according to UNN citing Bloomberg.
Increased strikes on oil refineries in the Middle East and Russia have further limited already strained global refining capacity, pushing refining product margins to new highs. Diesel fuel remains at the epicenter of growth
Downtime at oil refineries exceeds seasonal norms by 60%, while product inventories are falling despite some decline in demand, according to bank analysts. The profit from producing a barrel of diesel fuel compared to Brent next year will average $63 in the US and $49 in the European Union — against previous forecasts of $27 and $19 respectively.
What is pressuring the market
- Russia extended its ban on diesel exports until September;
- demand is growing in Brazil, the world's second-largest diesel importer;
- the approaching winter in the Northern Hemisphere increases demand for heating fuel;
- fuel price increases are outpacing crude oil price increases.
In the Middle East, oil exports from the Persian Gulf have likely returned to 70-80% of pre-war levels, while oil product supplies remain at only 40%, Goldman analysts noted in an August 28 memo. Full recovery of demand, in their assessment, requires geopolitical de-escalation.
Brent crude oil futures rose nearly 50% this year and recently traded around $91 per barrel amid renewed escalation in the Middle East. European gasoil futures for the same period more than doubled.
Goldman Sachs has been highlighting commodity market tensions in recent months: in March, the bank stated that a probable war between Iran and the US would have significantly greater impact on fuel than on crude oil. This month, analysts reiterated the impact of Ukrainian strikes on Russian energy infrastructure.
Shell CEO Wael Sawan spoke of a "triple threat" to the market: strikes on Russian refineries and dangers to shipping in the Persian Gulf and Red Sea. TotalEnergies CEO Patrick Pouyanné noted that while certain oil shipments passed through the Strait of Hormuz, refined products were not being exported through it.
The refining capacity deficit is not a problem of oil supplies, but rather a problem of who and where can convert it into fuel without risking being hit. The question for the coming months: will the global diesel market withstand the combination of winter demand, Russia's export embargo, and further strikes on refineries without a new price surge at the pump.
