Why is diesel facing higher margins compared to other refined products?

Diesel faces a severe structural supply deficit due to the loss of traditional Russian export flows to Europe, combined with high baseload demand from commercial trucking, heavy industry, and maritime transport. Furthermore, global refining capacity additions have lagged demand growth for complex middle distillate hydrotreating units.

How does the Strait of Hormuz situation impact global fuel supplies?

The Strait of Hormuz is a vital transit corridor for both crude oil feedstocks and refined petroleum exports from the Persian Gulf. Any threat or disruption in this passage forces tankers into longer, costlier alternate routes, effectively locking up global shipping capacity and increasing landed fuel delivery costs.

Can upcoming global refinery additions alleviate the margin surge before 2026?

While new mega-refineries are ramping up in regions like the Middle East and Nigeria, operational delays, startup bottlenecks, and offsetting refinery retirements in the West mean net capacity additions remain insufficient to swiftly balance the market, keeping margins robust through 2026.

OilPrice · June 2, 2026 (Jun 2) · 1 min read

Goldman Sachs Sees Strong Refining Profits Through 2026 Amid Fuel Supply Crunch

Analysis

AI-assisted analysis · reviewed by Yuri Kan

Goldman Sachs projects that global downstream refining margins will remain extraordinarily elevated through at least 2026, driven primarily by systemic product shortages linked to Middle Eastern geopolitical friction and shipping bottlenecks around the Strait of Hormuz. Refining profitability has surged between two- to three-fold above historical norms as middle distillates, particularly diesel, face sustained supply deficits. This prolonged margin expansion signals that structural downstream constraints will continue to outlast near-term macroeconomic headwinds.

Key Facts

Goldman Sachs released an updated market forecast indicating that global refining margins will stay well above historical averages through the end of 2026.
Middle distillate cracks, particularly for diesel, are experiencing the steepest premium due to constrained refining capacity and rerouted trade lanes.
Geopolitical unrest in the Middle East and threats surrounding the Strait of Hormuz have restricted the efficient transit of both crude feedstocks and refined fuels.
Global refiners are currently capturing processing margins approximately two to three times higher than baseline historical averages.
The ongoing fuel supply crunch is exacerbated by years of underinvestment in complex refining infrastructure across North America and Europe.
Elevated crack spreads are expected to sustain high operational run rates among modern, highly complex refineries equipped to process diverse crude slates.

Background & Context

The global refining landscape has undergone significant disruption since 2022, when Western sanctions on Russian refined products forced a massive reconfiguration of traditional maritime trade flows. Compounding this structural shift, several major refinery closures across Europe and the Americas during the pandemic left the global system with minimal spare processing capacity. Recent hostilities in the Middle East and maritime security risks in regional transit corridors have further squeezed product availability, turning what was once viewed as a temporary spike into a prolonged multi-year capacity bottleneck.

Market Impact

Sustained high refining margins deliver substantial cash flow windfalls to complex merchant refiners, enabling debt reduction and increased shareholder returns. However, persistently expensive middle distillates will exert upward pressure on global freight, industrial transport, and agricultural operating costs, complicating central bank inflation management. European and Asian consumers will bear the brunt of elevated import premiums, while export-oriented refiners with access to advantaged feedstocks in the US Gulf Coast and the Middle East will cement their competitive advantage over older, energy-intensive coastal facilities.

What to Watch

Market participants should monitor global refinery utilization rates and the timeline for delayed greenfield additions in West Africa and the Middle East to determine when new supply might soften margins. Analysts will also track whether prolonged elevated diesel costs trigger demand destruction in major industrial economies over the coming quarters. Geopolitical developments regarding maritime transit security in critical Middle Eastern chokepoints remain the pivotal variable for crack spread volatility through 2025 and 2026.

Why This Matters for Cyprus

For the Eastern Mediterranean, elevated diesel and fuel oil margins increase the operational costs of power generation in island markets like Cyprus, which still depend heavily on liquid fuel imports pending the commissioning of LNG import terminals. Additionally, regional bunkering hubs across Greece, Cyprus, and Egypt will see sustained high marine fuel prices, directly impacting shipping operating costs along the Suez-Levant corridor.

Frequently Asked Questions

Why is diesel facing higher margins compared to other refined products?: Diesel faces a severe structural supply deficit due to the loss of traditional Russian export flows to Europe, combined with high baseload demand from commercial trucking, heavy industry, and maritime transport. Furthermore, global refining capacity additions have lagged demand growth for complex middle distillate hydrotreating units.
How does the Strait of Hormuz situation impact global fuel supplies?: The Strait of Hormuz is a vital transit corridor for both crude oil feedstocks and refined petroleum exports from the Persian Gulf. Any threat or disruption in this passage forces tankers into longer, costlier alternate routes, effectively locking up global shipping capacity and increasing landed fuel delivery costs.
Can upcoming global refinery additions alleviate the margin surge before 2026?: While new mega-refineries are ramping up in regions like the Middle East and Nigeria, operational delays, startup bottlenecks, and offsetting refinery retirements in the West mean net capacity additions remain insufficient to swiftly balance the market, keeping margins robust through 2026.

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