Why Diesel Prices Could Remain Elevated Through 2027 as Refineries Struggle

Table of Contents

• You might want to know


• Main Topic


• Key Insights Table


• Afterwards...

You might want to know

• Why might diesel prices need to remain high through 2027, even if crude oil flows gradually return to normal?


• Can emergency reserve releases solve the underlying shortage of refined products, or do they mainly provide temporary relief?

Main Topic

Diesel prices may remain elevated through 2027 as demand recovers while refineries face limits on how much fuel they can produce. Goldman Sachs argues that high prices may be needed to prevent consumption from rising faster than the refining system can supply. The concern is not simply whether crude oil is available; it is whether refineries have sufficient capacity, operational flexibility, and inventory to turn crude into diesel and other products at the pace buyers require.

Nikhil Bhandari, Goldman Sachs’ co-head of Asia-Pacific natural resources research, told CNBC’s “Squawk Box Asia” on Monday that product prices may need to stay high enough to sustain some demand destruction into next year. In this context, demand destruction means that high prices encourage consumers and businesses to reduce, delay, or otherwise limit fuel use. The approach reflects a difficult balance: prices need to moderate enough to support economic activity, but not fall so far that recovering demand overwhelms constrained refineries.

Goldman expects global diesel and jet-fuel crack spreads—the premiums refined products command over crude—to average above $40 per barrel in 2027. That would be more than twice their usual level of around $20. The forecast comes despite the bank’s expectation that Brent crude will stabilize at approximately $80 per barrel as recent crude flows through the Strait of Hormuz gradually normalize. In other words, a return toward steadier crude supply would not necessarily translate into abundant diesel or jet fuel. Refining capacity and product inventories remain separate constraints.

Bhandari said that any rebound in demand next year could push the global refining system to the highest utilization rate seen in the last two decades. Utilization measures how intensively refineries operate relative to their available capacity. Running facilities at very high rates may help increase output, but it leaves less room to compensate for outages, maintenance, or unexpected disruptions. The central risk is that demand could recover faster than the refining network can safely and sustainably respond.

Recent weakness in fuel consumption should not automatically be treated as evidence that underlying demand has disappeared. Baden Moore, resources and energy research analyst at brokerage CLSA, said in an email to CNBC that underlying oil-product demand remains largely intact. He described buyers as balancing the market through inventory management, reserve drawdowns, consumption curtailment, and refinery optimization. These measures can reduce immediate pressure on supply, but they do not necessarily restore the stocks that have already been used.

Replenishing global inventories while also meeting ongoing demand could take up to two years, Moore added. This creates a continuing call on refined products even after immediate shortages ease. Buyers may need to purchase fuel both for current use and to rebuild stocks, so market demand can remain firm during the recovery. If inventories are rebuilt slowly, prices may stay elevated even when supply conditions appear less acute than during a period of direct disruption.

Refinery capacity is another concern. Goldman expects 2026 to be another year of “negative refining capacity growth,” with refining capacity outside China expected to contract by roughly 300,000 barrels per day. That forecast suggests the industry may have less capacity available just as demand starts to recover. A smaller or more constrained production base can amplify the effect of maintenance, outages, and regional disruptions on the availability of diesel and other refined fuels.

Goldman’s global Refining Super Cycle report, published September 21, estimated that product inventories could end 2026 below the lowest days-of-supply level recorded since 2015. Days of supply indicate how long existing inventories could meet demand at a given rate. A low level can leave buyers and suppliers with limited flexibility if new disruptions occur. It also means that even a gradual demand recovery may put pressure on prices before stocks return to more comfortable levels.

Several current supply constraints add to the challenge. Bhandari said roughly 2 million barrels per day of Middle Eastern refining capacity remains offline. Damaged Russian facilities have further restricted diesel supply. In the United States, refineries that have been operating at elevated rates to compensate for falling capacity will also need deferred maintenance. That work would temporarily reduce refinery runs, limiting output during periods when the market may already be tight.

More normal Gulf crude exports may not substantially improve the availability of refined products. Crude oil must be processed before it becomes diesel, gasoline, or jet fuel, and shipments of those products remain restricted. This distinction matters because an increase in crude flows cannot immediately resolve a shortage of finished fuels if refineries are constrained or product shipments remain limited. The ability to move crude and the ability to deliver usable fuel are connected, but they are not interchangeable.

On Friday, Group of Seven countries agreed to release 100 million barrels of crude and refined products over four months. The plan includes a “front-loaded substantial diesel release” within the first 20 days. The announcement sent European gasoil futures down 5.75%, showing that the commitment affected market expectations in the short term. However, a price response to a reserve announcement does not by itself demonstrate that long-term supply constraints have been resolved.

Industry and market commentators have cautioned that emergency reserves are a temporary tool. Saudi Aramco CEO Amin Nasser said on Monday that emergency reserves “might buy us a winter,” but cannot fix long-term supply. Moore of CLSA similarly said emergency releases address a liquidity problem, not the underlying stock problem. Such releases can make fuel available sooner, but when buyers use reserves rather than rebuild inventories, the amount of stock requiring replenishment may remain large.

Bernard Aw, Coface’s chief economist for Asia-Pacific, also described the effect of releases as “temporary rather than structural” in an emailed statement to CNBC. This assessment distinguishes short-term market relief from lasting improvements in supply. Reserve releases can help bridge a difficult period, but they do not automatically repair damaged facilities, add refining capacity, complete maintenance, or create a durable flow of diesel and other products. Their longer-term effect depends partly on whether regular production and shipments recover while inventories are being restored.

Taken together, the outlook reflects several overlapping pressures: recovering consumption, refinery capacity constraints, offline facilities, planned maintenance, restricted product shipments, and depleted inventories. Any one factor might be manageable in isolation, but their combination leaves the market vulnerable to renewed tightness. Goldman’s forecast of elevated crack spreads is therefore tied not only to the price of crude, but also to the cost and availability of converting crude into fuels that consumers and businesses can use.

For buyers, policymakers, and energy producers, the key issue is how quickly normal supply can return without pushing refinery systems beyond their limits. High prices may suppress some demand and help balance the market in the near term, but they can also raise costs for companies and households. The challenge is to manage that trade-off while rebuilding inventories and maintaining reliable product flows. The data and forecasts cited by Goldman and other analysts point to a recovery that may take time rather than a rapid return to normal conditions.

Key Insights Table

Afterwards...

The outlook underscores the need to understand energy supply as a chain that includes crude production, refining, product storage, and transportation. Monitoring crude flows alone may not reveal whether consumers can obtain enough diesel, gasoline, or jet fuel. Further work on transparent, timely data about refinery utilization, maintenance schedules, product inventories, and regional shipments could help policymakers and market participants identify shortages earlier and distinguish temporary disruptions from structural constraints.

Humanity should also explore how to make refining systems more resilient without relying indefinitely on unusually high prices or reserve drawdowns. Potential areas for study include better maintenance planning, flexible refinery operations, stronger logistics networks, and improved coordination of strategic inventories. These approaches would not remove every supply risk, but they could help reduce the impact of outages and make it easier to rebuild stocks during periods of recovery.

Over the longer term, research into efficiency and alternative energy sources may change the scale and composition of demand for oil products. Such transitions take time, and essential sectors may continue to depend on liquid fuels while technologies develop. The most useful path forward combines reliable near-term supply planning with careful investment in resilience, efficiency, and lower-carbon energy options. Continued attention to both refining capacity and the underlying inventory position can help explain why prices may remain high even when crude flows begin to normalize.