Goldman: Diesel prices set to stay high through 2027 as refineries struggle to meet demand

Diesel prices may need to remain high through 2027 as refinery constraints contend with recovering consumption from governments and companies rebuild depleted inventories, according to Goldman Sachs.

“We need to keep product prices high enough to have a certain level of demand destruction continuing next year,” Nikhil Bhandari, Goldman’s co-head of Asia-Pacific natural resources research told CNBC’s “Squawk Box Asia” on Monday.

The bank sees high diesel prices as necessary to prevent recovering demand from overwhelming constrained refineries.

Goldman forecasts global diesel and jet-fuel crack spreads — the premium refined products command over crude — will average above $40 per barrel in 2027, more than twice their usual level of around $20.

That is despite the bank expecting Brent crude to stabilize at approximately $80 per barrel as recent crude flows through the Strait of Hormuz gradually normalize.

“If there is any demand rebound next year, we think the global refining system will have to hit the highest utilization rate that we have seen in the last two decades,” Bhandari said.

Baden Moore, resources and energy research analyst at brokerage CLSA, said that recent weakness does not necessarily represent permanently lost demand.

“Underlying oil-product demand remains largely intact,” Moore said in an email to CNBC, adding that buyers have instead balanced the market through inventory management, reserve drawdowns, consumption curtailment and refinery optimization.

Replenishing global inventories while meeting demand could take up to two years, he added.

Recovering refined product demand could also collide with a strained refinery network, Goldman said.

The bank expects 2026 to be another year of “negative refining capacity growth,” as refining capacity outside China is expected to contract by roughly 300,000 barrels per day.

Goldman estimated that product inventories could end 2026 below the lowest days-of-supply level recorded since 2015, according to its global Refining Super Cycle report published September 21.

Meanwhile, roughly 2 million barrels per day of Middle Eastern refining capacity remains offline, Bhandari said, while damaged Russian facilities have further restricted diesel supply.

U.S. refineries that have been running at elevated rates to compensate for falling capacity would also need to undergo deferred maintenance that will temporarily reduce refinery runs, he added.

The recovery of Gulf crude exports is not expected to substantially improve refined product availability, as shipments of diesel, gasoline and jet fuel remain restricted.

Bhandari’s comments come after Group of Seven countries agreed on Friday to release 100 million barrels of crude and refined products over four months, including a “front-loaded substantial diesel release” within the first 20 days.

The announcement sent European gasoil futures down 5.75%.

But experts are not optimistic that the additional supply will improve refined product availability and temper prices in the long run.

Emergency reserves “might buy us a winter,” but cannot fix long-term supply, Saudi Aramco CEO Amin Nasser said on Monday.

“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.

Bernard Aw, chief economist for Asia-Pacific at Coface agreed, adding that the impact of such releases is “temporary rather than structural,” in an emailed statement to CNBC.