Oil Flows Are Recovering But Diesel is Likely To Continue Being Expensive For a While. Here’s Why.

Even as more crude oil begins flowing through the Strait of Hormuz, diesel prices could remain high through 2027 as refineries struggle to meet recovering demand and rebuild depleted inventories.

Goldman Sachs expects global diesel and jet-fuel crack spreads, the difference between the price of refined fuel and the crude used to produce it, to average more than $40 a barrel in 2027, more than double their usual level of around $20.

"We need to keep product prices high enough to have a certain level of demand destruction continuing next year," Nikhil Bhandari, Goldman Sachs' co-head of Asia-Pacific natural resources research, told CNBC in an interview Monday.

Goldman expects Brent crude to stabilize at around $80 a barrel as crude flows through the Strait of Hormuz gradually normalize. Bhandari said that if fuel demand rebounds next year, the global refining system could need to operate at its highest utilization rate in two decades.

Refinery capacity remains one of the main constraints. Goldman expects refining capacity outside China to contract by roughly 300,000 barrels a day in 2026, while about 2 million barrels a day of Middle Eastern refining capacity remains offline, Bhandari said.

Russian refinery disruptions have also restricted diesel supplies. In the U.S., refineries have been running at elevated rates to offset shortages elsewhere, but some plants will eventually need to undergo deferred maintenance, temporarily reducing output, according to Bhandari.

Fuel inventories have also fallen. The U.S. Energy Information Administration said in its September Short-Term Energy Outlook that U.S. distillate inventories, which include diesel and heating oil, were expected to fall below 100 million barrels and remain below the five-year low through the end of 2026 and most of 2027.

The agency said U.S. distillate inventories had fallen below their five-year range in April as exports increased following reduced supplies from the Middle East, Russia and China. Global distillate production was also expected to remain below last year's levels in the coming months.

The EIA estimated that U.S. diesel crack spreads would remain above $2 a gallon from August through November before declining through mid-2027. That forecast assumes tanker traffic through the Strait of Hormuz returns to normal and refineries in Saudi Arabia and Kuwait are able to increase distillate exports.

Buyers have instead relied on inventory management, reserve drawdowns, reduced consumption and refinery optimization to balance the market, Moore said. Rebuilding inventories while continuing to meet demand could take as long as two years.

Governments have moved to add supplies from emergency stockpiles. G7 leaders on Friday agreed to release 100 million barrels of oil and fuel reserves over four months, including a substantial diesel release within the first 20 days, according to an official G7 statement.

The group also agreed to coordinate refinery maintenance schedules to avoid simultaneous shutdowns and temporarily increase refinery utilization where possible.

Saudi Aramco President and CEO Amin Nasser said Monday that emergency stock releases could ease near-term shortages but would not replace lost long-term supply.

"Emergency reserves might buy us a winter. They cannot fix long-term supply," Nasser said in remarks published by Aramco.

Nasser said the world entered the disruption with almost 10 billion barrels of total oil stocks and that more than 1 billion barrels had since been drawn from inventories. He said replenishing inventories while continuing to meet demand could take up to two years.

The G7 said its coordinated 100 million-barrel release would begin immediately and run for four months. It has also asked the International Energy Agency to report back on implementation and stock replenishment within 20 days.