Goldman Sachs analysts point out that diesel prices are likely to remain high until 2027 due to limited refining capacity and a rebound in demand as governments and businesses replenish depleted inventories. Nikhil Bhandari, co-head of Asia Pacific Natural Resources Research at Goldman Sachs, stated on Monday morning (October 5th, Beijing time): "We need to maintain sufficiently high refined product prices to sustain the demand-suppressing effect next year." The bank predicts that in 2027, the global diesel-jet fuel crack spread—the premium of refined products relative to crude oil—will average over $40 per barrel, more than double the usual level of around $20. Even if Brent crude oil stabilizes around $80 per barrel, and the recent return to normalcy in oil transportation through the Strait of Hormuz is unlikely to change this situation. He stated that if demand rebounds next year, global refining systems may reach their highest operating rates in nearly two decades.

The inventory recovery period is lengthy, but the fundamental demand has not weakened.

Baden Moore, a resources and energy research analyst at CLSA, believes that the recent weakness in oil prices does not indicate a permanent contraction in demand. He stated that underlying demand for refined products remains largely stable, and market participants are balancing supply and demand through inventory adjustments, utilizing reserves, reducing consumption, and optimizing refining production. He added that completing the global inventory replenishment process while simultaneously meeting market demand could take up to two years.

Refining networks are under pressure as multiple factors tighten supply.

Goldman Sachs noted that the recovering demand for refined oil products will clash with overworked refining facilities. In its global refining supercycle report released on September 21, the bank predicted that refining capacity will continue to decline in 2026, with refining capacity outside major Asian countries expected to shrink by approximately 300,000 barrels per day. By the end of 2026, refined oil product inventory days may fall below the lowest level since 2015. Nishir Bhandari explained that approximately 2 million barrels per day of refining capacity in the Middle East remains shut down, and damage to related facilities in Russia further compresses diesel supply. US refineries, which have been relying on high operating rates to compensate for capacity shortfalls, will need to conduct extended maintenance, further reducing processing volumes in the short term. The recovery of crude oil exports from the Gulf region has not significantly improved the supply of refined oil products, as the export of diesel, gasoline, and jet fuel remains restricted.

Releasing oil reserves will only have a short-term effect.

The G7 reached an agreement last Friday to release 100 million barrels of crude oil and refined products over four months, with a large concentration of diesel fuel releases in the first 20 days. Following the announcement, European gas oil futures fell 5.75%. However, industry experts are not optimistic that this increased supply will improve refined product supply and stabilize prices in the long term. Saudi Aramco CEO Amin Nasser stated on Monday that emergency reserves might help the market weather the winter, but they cannot solve the long-term supply problem. Baden Moore stated that emergency releases can only address liquidity issues and cannot fundamentally solve the core problem of insufficient inventory. Such releases merely buy time; their essence is to deplete inventory rather than rebuild it, and subsequent replenishment will actually create long-term demand. Bernard Aw, chief economist for Asia Pacific at Coface, shares the same view, noting that the impact of reserve releases is a short-term effect and will not change the structural problems in the market.

Conclusion

Overall, the global refined oil market is facing a confluence of factors, including recovering demand, shrinking refining capacity, and low inventories. Short-term emergency reserve releases can only temporarily alleviate market sentiment and are unlikely to reverse the supply fundamentals. If oil demand continues to recover, the high diesel price situation may persist until 2027, and the global refining system will face continued challenges.