Goldman Sachs: Refining capacity is tight, diesel cracking profits will remain at high levels.

According to Goldman Sachs Group, Inc., diesel refining margins may fall from extremely high levels, but due to the tightness in global processing capacity, they are still expected to remain above long-term average levels. Goldman Sachs Group, Inc. analyst Yulia Zhestkova Grigsby stated in a report released on Thursday that the recent performance of the industrial fuel market has been strong, with global inventories continuing to decline and a significant increase in so-called financial demand. They noted that unexpected shutdowns at European refineries and a lack of crude oil types that can produce distillates (including crude oil from Venezuela, Canada, and OPEC+) have exacerbated this situation. In recent months, the tightness in the diesel market (mainly concentrated in Europe and the United States) has become a significant feature of the global oil market. With decreasing inventories, profits (i.e. the revenue obtained by converting crude oil into diesel) have declined. This week, TotalEnergies warned that the rise in diesel prices would become a "long-term trend." Goldman Sachs Group, Inc. analysts stated, "Refining margins are expected to fall from their current highs." However, they believe that due to the continued tightness in refining capacity, "diesel prices will still be higher than the pre-pandemic average level." In the United States, diesel inventories nationwide are still at their lowest seasonal levels since 1996, even after a slight increase last week. Meanwhile, in Singapore - a major trading center, inventories of middle distillates (including diesel) have fallen to their lowest levels since February 2024. For the second half of this year and 2026, diesel refining margins are expected to be about $10 per barrel higher than the average levels from 2013 to 2019. European refining margins are expected to be $23 per barrel, up from $19 previously; and profits for U.S. heating oil (a similar product) are expected to be $28 per barrel, up from $23 previously. On a broader scale, Goldman Sachs Group, Inc. states that the continued slowdown in the expansion of global refining capacity (decreasing from 1.2 million barrels per day in 2023-2024 to 500,000 barrels per day in 2025-2026) will keep refined oil profits at high levels.