The supply pressures in the global diesel market may not be over just yet. Goldman Sachs' latest forecast suggests that diesel prices may need to remain high throughout 2027 in order to curb demand growth and prevent the recovering consumption from further straining the already tight global refining system.

Goldman Sachs expects that in 2027, the average crack spread between diesel and aviation fuel globally will still exceed $40 per barrel, which is more than twice the normal level of around $20. Even as crude oil transportation through the Strait of Hormuz gradually resumes and Brent crude prices stabilize at around $80 per barrel, the refined products market may still remain significantly tight.

Nikil Bhandari, co-head of Goldman Sachs' Asia-Pacific Natural Resources Research, said in an interview with CNBC on Monday that next year, refined oil prices need to be maintained at a sufficiently high level to ensure that a certain degree of demand disruption continues to exist. If demand rebounds in 2027, the global refining system may have to reach its highest capacity utilization rate in over two decades.

This means that an improvement in crude oil supply does not necessarily translate into a relaxation of diesel supply simultaneously. The main constraints in the current market have shifted to refining capacity, inventory levels of refined products, and the speed at which damaged refineries can recover.

Goldman Sachs expects that there will be another “negative growth” in global refining capacity in 2026, with refining capacity outside of China expected to decrease by about 300,000 barrels per day. In its report on the global “refining supercycle” released on September 21, the bank estimated that by the end of this year, refined oil inventories, calculated based on days of supply, could fall below their lowest level since 2015.

Meanwhile, there is still about 2 million barrels per day of refining capacity in the Middle East that is currently out of operation, and damage to some Russian refining facilities has further limited the supply of diesel. American refineries have previously compensated for the decline in capacity in other regions by maintaining a high operating rate, but some refineries have postponed equipment maintenance, which will lead to a phased reduction in processing volumes in the future.

Baden Moore, a resource and energy research analyst at CLSA, believes that the recent weak demand cannot simply be regarded as a permanent disappearance of consumption. Enterprises and governments mainly balance the market through inventory management, tapping into reserves, cutting consumption, and optimizing refinery operations, so there is still a fundamental potential demand for petroleum products.

Once the market begins to replenish the inventory that was previously depleted, refineries will need to meet both end-consumer demand and inventory restocking requirements. Moore estimates that it may take up to two years for global inventory to recover, which will prolong the supply pressure in the diesel market for an even longer period.

Middle East crude oil exports are making a clear recovery. Shell's CEO, Vel Sivan, Wael Sawan, stated at a Energy Intelligence Forum held in London on Tuesday that Middle East oil flows have returned to over 80% of the levels prior to the conflict.

However, transportation through the Strait of Hormuz has not yet fully returned to normal, and it remains difficult to accurately measure the traffic volume. Some vessels have turned off their satellite positioning signals, forcing traders and analytical institutions to rely on satellite imagery and other information to assess the actual scale of transportation.

More importantly, the resumption of crude oil transportation has not simultaneously solved the issue of refined oil supply. Goldman Sachs pointed out that the transportation of diesel, gasoline, and aviation fuel is still restricted, therefore the increase in crude oil exports from the Gulf region has a relatively limited impact on improving global diesel supply.

Savan also warned that if the duration of the war continues to extend, the difficulty for markets to absorb supply disruptions will continue to increase. Previously, declining demand in Asia and increased production in other regions helped to mitigate the impact during the most severe phase of the crisis, but this buffering capacity has its limits.

The G7 announced last Friday that it would release a total of 100 million barrels of crude oil and refined products reserves within four months, with plans to concentrate the release of a considerable amount of diesel in the first 20 days. Following the announcement, the price of low-sulfur diesel futures, which serve as a benchmark for diesel in Europe, fell by 5.75% at one point.

However, many industry insiders in the energy sector believe that the release of strategic reserves will have a limited impact on the medium to long-term diesel supply and demand situation.

Saudi Aramco's CEO, Amin Nasser ( Amin Nasser ), stated on Monday that the release of emergency reserves might help the market "get through a winter," but it cannot solve the long-term supply issues. Moore also pointed out that the release of inventory mainly alleviates short-term liquidity pressures and cannot fix the problem of insufficient inventory itself.

After the reserves are released, the market will still need to replenish its stock in the future, and this demand will ultimately return to the refining system. Bernard Oh ( Bernard Aw ), the Chief Economist for Coface's Asia-Pacific region, also believes that the impact of releasing reserves is more temporary rather than structural.

Therefore, even though crude oil supply is gradually recovering and countries are drawing on emergency reserves to alleviate recent pressures, the real constraints facing the diesel market still lie in insufficient refining capacity, low inventories of refined products, and the inability of some key refineries to operate normally. Goldman Sachs expects that these factors may continue to support abnormally high refining profit margins and prolong the tight situation in the diesel market until 2027.