Goldman Sachs: Global Refinery Outages Surpass Worst-Case Scenario, Fuel Supply Tightness Could Persist Until 2027
TREE NEWS reports: Global refinery outages have exceeded Goldman Sachs’ own worst-case scenario, with the bank warning that tight refined product supply could last until 2027. In a report titled “Oil Products Tracker: Weak Supply May Persist Until 2027,” the bank’s commodities team estimates that Middle East refinery outages are running about 1.6 million barrels per day (bpd) above seasonal norms, while Russian outages are about 4.2 million bpd above normal. Combined, the excess outage volume of roughly 5.8 million bpd has surpassed the 5 million bpd worst-case assumption set in September’s “nightmare refining crisis” scenario.
At the same time, the autumn maintenance season has been unusually light, with much deferred work set to hit in the second quarter of 2027, when planned outages in Asia (ex-China)—especially India and South Korea—will far exceed seasonal norms. Goldman noted that global average retail fuel prices are around $223 per barrel, and refined product inventories are low across major hubs, leaving little buffer for additional supply shocks.
Market Implications
Oil: Crude vs. Products Divergence
On Monday, Brent crude fell as much as 1.4% and WTI dropped 2%, as markets traded on hopes of de-escalation between Washington and Tehran. However, Goldman argues the real story has shifted downstream: the war premium never left the barrel; it simply moved from crude to the refinery gate, tanker charters, and gas stations. The bank maintains a bearish view on crude, forecasting Brent at $90/bbl in December and an average of $80/bbl in 2027, while recommending long exposure to refined products.
Refined Products: Tightness to Persist
Goldman reiterates its recommendation to go long 2027 European summer gasoline as a hedge against further geopolitical escalation. The logic: Q2 2027 is when deferred maintenance will be concentrated, coinciding with the start of the driving season and the point when refineries that skipped maintenance are most likely to fail. Gasoline is currently the “cheapest leg” among refined products, with the Nymex gasoline crack at $27.94/bbl, the lowest since April, while the heating oil (diesel) crack is $98.45/bbl, about 3.5 times higher.
Freight and Inventories
Global average crude freight rates hit a record $24/bbl in October, up from about $3 a year ago. This has two impacts: it squeezes refining margins for plants reliant on long-haul crude imports, and it diverts clean tankers to carry crude, reducing refined product shipping capacity. Inventories remain low: US gasoline and diesel stocks are below historical ranges; China’s gasoline and diesel inventories are down 8% and 11% year-on-year, respectively; Singapore middle distillate stocks are down 44% YoY; and ARA hub jet fuel stocks are down 56% YoY.
Demand Destruction Not Enough
Despite demand destruction—European oil demand and US gasoline demand are both down about 2% YoY—inventories continue to draw. Goldman notes that supply-side structural damage is overwhelming the textbook demand response. The Brent December-December spread hit $29.98/bbl, the strongest backwardation on record, signaling the market does not believe the demand-panic narrative.
Key Takeaways for Investors
- Refined product tightness is structural: The war premium has migrated from crude to products, and cannot be negotiated away. Refinery outages in the Middle East and Russia, plus deferred maintenance, will keep product markets tight through 2027.
- Long gasoline, short crude: Goldman’s trade recommendation—long 2027 European summer gasoline, short Brent—captures the divergence. Gasoline is the cheapest way to hold exposure to product tightness.
- Watch Q2 2027: The convergence of deferred maintenance, driving season, and potential unplanned outages could create a significant supply crunch, particularly for diesel and jet fuel.
- Freight costs are a double-edged sword: Record freight rates hurt refiners dependent on imported crude and reduce product tanker capacity, exacerbating product tightness.
- Inventory buffer is minimal: With inventories at multi-year lows, any additional supply disruption could spike prices sharply. Bank of America’s Francisco Blanch suggests $120/bbl oil is “very likely” if Iran hits regional infrastructure.
