Goldman Sachs has dramatically revised its diesel refining margin forecast, projecting U.S. refiners will earn $63 per barrel on diesel production in 2027—more than doubling its earlier estimate of $27 per barrel—as geopolitical disruptions and operational outages squeeze global supplies to historic levels.

Market Context

The investment bank's commodity team issued the note as refinery margins hit record highs worldwide, with the U.S. crack spread reaching three digits for the first time ever earlier this month. The surge comes amid a confluence of supply-side shocks: refinery damage in the Middle East from the ongoing U.S.-Israeli conflict with Iran, Ukrainian drone attacks on Russian facilities, and Moscow's extension of its diesel export ban through at least the end of September.

Analysis

"Diesel remains at the epicenter of the rally," Goldman analysts wrote, noting that rising strikes on refineries in the Middle East and Russia have further constrained already-stretched global refining capacity. Global diesel stocks are running low as refinery outages currently sit 60% above seasonal averages, with tightness expected to persist into next year. The situation is particularly acute for European Union refiners, who face an average margin of $49 per barrel—also a significant increase from the prior forecast of $19. Fuel exports from the Persian Gulf are operating at approximately 40% of pre-war levels, compared to crude oil exports running at 70-80% of normal rates, highlighting how refined products markets have been hit harder than crude.

European refineries face additional structural pressures as EU climate regulations forced energy companies to shutter capacity in anticipation of demand destruction that has yet to materialize. The continent now finds itself with fewer processing facilities precisely when supply disruptions are most severe, limiting its ability to compensate for lost Middle Eastern and Russian barrels.

"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," Goldman analysts wrote in their note to clients, as reported by Bloomberg. The bank's revised forecast effectively doubles total profits refiners would capture from the ongoing diesel squeeze compared to its prior projection.

Key Numbers

- $63/barrel: Goldman's projected U.S. diesel refining margin for 2027 (up from $27 estimate)

- $49/barrel: Projected EU average diesel refining margin in 2027 (up from $19 estimate)

- 60%: Current refinery outage levels above seasonal average

- ~40%: Persian Gulf fuel exports as percentage of pre-war levels

What to Watch

Traders should monitor Russia's diesel export ban status, with Moscow's prohibition currently extended through the end of September. Any further extension would signal continued tightness in Atlantic Basin supplies. U.S. crack spread levels and inventory draws will be critical data points, as the three-digit spreads seen earlier this month suggest refiners are capturing exceptional margins that could attract increased production—if additional capacity can be brought online quickly enough to meet demand ahead of winter heating season.

The trajectory of Middle East conflict and its impact on refinery operations remains a key wildcard. Should strikes intensify or spread to additional facilities, Goldman’s $63 forecast could prove conservative.