Diesel Refining Margins Soar as Geopolitical Tensions Bite
Global energy markets are feeling the effects of escalating geopolitical tensions, which have led to a significant increase in refining capacity constraints. According to Goldman Sachs' latest report, attacks on Middle East and Russian refineries have further strained already-tight global refining capacity, pushing refined product margins to new highs.
The analysts at Goldman noted that the average margin for refining a barrel of diesel from Brent crude will reach $63 in the U.S. market next year and $49 in the EU, far above their previous forecasts of $27 and $19, respectively. This is due in part to global refinery outages standing 60% above seasonal norms.
Despite some demand destruction, refined product inventories continue to decline, exacerbating the supply-demand imbalance that is driving surging diesel refining margins. The impact of geopolitical risk on refined products is significantly greater than on crude oil, with Persian Gulf crude exports having recovered to 70-80% of pre-war levels, but refined product exports standing at only 40% of pre-war volumes.