GS Oil Analyst - FJElite

Limited relief to refined products margins from Hormuz reopening. While crude prices declined by over $ 10 following the US-lran interim peace deal announcement, refined products margins have fallen less, with our global refined products margins index still double its pre-war level. While we remain constructive on products margins following the reopening, we have nudged down our diesel margins forecast given our assumption that Persian Gulf exports normalize by end-July (vs. our end-August assumption before the announcement). We now expect US/EU diesel margins to moderate to $46/31/bbl by 2026Q4 (vs. $50/37 prior), still 2-3 times above their 2013-2019 seasonal averages, but keep our gasoline margins forecast for 2026Q4 roughly unchanged at $23/13 for US/Europe.

Not out of the (Hormuz) woods yet. Lower-for-longer refined products stocks are the key reason for our constructive margins view. Both gasoline and diesel stocks remain below their 2022-2026 seasonal range in the US. and we expect diesel/gasoline stocks to edge down further for the next 1 /4 months, followed by a gradual recovery to 2025 seasonal levels by 2027H2. Gasoline stocks are especially low as refineries have prioritized diesel and jet fuel production at the expense of gasoline over the last 4 months. Although Persian Gulf refinery outages decreased by 1/2 since the ceasefire announcement, the remaining 1.3mb/d of unplanned outages may take several months to repair.1 While products supply is likely to remain constrained for longer, we expect refined product demand to largely rebound over the next quarter, with moderate demand scarring in 2027. As a result, we see gasoline and diesel margins averaging slightly above market forwards for the remainder of the year.

Structural tailwinds keep 2027 margins elevated. Despite some sequential moderation in products margins next year as Asia and Middle East refineries ramp up production and stocks rebuild, we see margins remaining above their 2025 levels, with average 2027 US/EU diesel margins at $38/25/bbl (vs. $41/29 prior) and average 2027 US/EU gasoline margins at $22/15/bbl (unchanged). Extended delays in China and India refining capacity additions and continuing attacks on Russian refineries are likely to keep global utilization rates near their all-time highs in 2027.

Two-sided risks, with more limited downside than for crude prices.

With structural tailwinds providing a floor under products margins, we see more limited downside risk to margins than to crude prices.

More limited downside. Assuming Gulf exports normalize by early July, crude production beats, and demand losses appear to be stickier, US diesel/gasoline margins might average 14/9% ($5/2/bbl) below our 2027 base case vs. 28% ($21 /bbl) lower for Brent.

More upside. Assuming Hormuz remains disrupted through 2027 with Gulf crude exports recovering gradually by 10mb/d by Dec 2027. 2027 average US diesel/gasoline margins might exceed our base case by 66% ($25/bbl) vs. Brent by 41% ($30/bbl) given a larger Hormuz supply hit to middle distillates than for crude.