Goldman hikes forecast for already spiking diesel on tight supply

Red-hot diesel refining margins may cool off from current highs, but likely will still end up above long-run averages given the crunch in global processing capacity, Goldman Sachs said in a new report.

Tightness in the diesel market has been a standout theme of the global petroleum market in recent months; U.S. diesel inventories remain at their lowest level since 1996 on a seasonal basis, and Singapore holdings of middle distillates - a category that includes diesel - have dropped to the lowest since February 2024.

"We expect some moderation in diesel margins from current very high levels," but they should stay "above pre-pandemic averages on continuing structural tightness in refining capacity," Goldman wrote.

Goldman sees diesel refining margins staying ~$10/bbl higher in this year's H2 and in 2026 vs. the 2013-19 average, European gasoil margins are forecast at $23/bbl compared to $19/bbl previously, and U.S. heating oil - a similar product - is projected at $28/bbl compared with $23/bbl.

The continued slowdown in the pace of global refinery capacity additions from 1.2M bbl/day in 2023-24 to 500K bbl/day in 2025-26 will keep refined-product margins elevated, Goldman said.

Crude oil futures ended the session and the week lower in rangebound trading, supported by the U.S. inching toward a trade deal with the European Union and a second weekly draw in U.S. crude oil inventories, while additional OPEC+ output kept a lid on advances.

"We're in a peak summer lull... there's just not much of an appetite for putting on significant directional risk," Societe Generale analyst Ben Hoff said in a note.

Looking ahead, analysts continue to expect a significant oversupply as seasonal demand eases in the fall, which will likely put additional pressure on prices.

This week, front-month Nymex crude (CL1:COM) for September delivery finished -1.3% to $65.16/bbl, and front-month Brent September crude (CO1:COM) settled -1.2% to $68.44/bbl, while U.S. natural gas posted its fourth loss in five weeks, with the August front-month contract closing -12.7% to $3.110/MMBtu, pressured by forecasts of cooler than normal temperatures in the first week of August and possibly the following week.

On Friday, Nymex crude and Brent settled down 1.3% and 1.1%, while U.S. natural gas edged higher by 0.5%.

ETFs: (NYSEARCA:USO), (BNO), (NYSEARCA:UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

Energy stocks, as represented by the Energy Select Sector SPDR Fund (NYSEARCA:XLE), were +1.3% for the week.

Top 10 gainers in energy and natural resources in the past 5 days: Fusion Fuel Green (HTOO) +64.5%, Bloom Energy (BE) +37.4%, Maxeon Solar Technologies (MAXN) +33.1%, American Battery Technology (ABAT) +31.2%, Eco Wave Power (WAVE) +28.9%, Geospace Technologies (GEOS) +20.4%, Atlas Lithium (ATLX) +20.3%, Lithium Argentina (LAR) +18.3%, Uranium Royalty (UROY) +18.3%, Borr Drilling (BORR) +17.5%.

Top 10 decliners in energy and natural resources in the past 5 days: VivoPower International (VVPR) -29%, Namib Minerals (NAMM) -27.4%, USA Rare Earth (USAR) -17.8%, New Fortress Energy (NFE) -17.4%, Icon Energy (ICON) -13.5%, U.S. Antimony (UAMY) -13.4%, Teck Resources (TECK) -12%, EQT Corp. (EQT) -11.8%, Enphase Energy (ENPH) -10.5%, Comstock Resources (CRK) -10.4%.

Source: Barchart.com