“Global diesel prices to remain elevated through next year,” Goldman Sachs

[Financial News]  

Goldman Sachs forecast that global diesel prices would remain elevated through next year.
According to CNBC on the 6th (local time), Nikhil Bhandari, Goldman Sachs’ co-head of natural resources research for Asia-Pacific, made the assessment in an interview the previous day.
Bhandari said diesel consumption would recover as governments and the private sector replenished inventories, but high prices would be unavoidable because refining capacity would not be able to keep up.
He stressed, “Product prices will need to stay high enough through next year to bring about a certain degree of demand destruction.”
Goldman believes that a sustained rise in diesel prices is inevitable to keep the recovery in demand from overwhelming refining capacity.

According to Goldman, next year the global crack spreads for diesel and jet fuel are expected to average at least $40 a barrel, more than twice the usual level of about $20 a barrel. A crack spread is the “refining margin” left after crude oil is purchased, refined into finished petroleum products such as diesel and jet fuel, and sold.
Goldman issued this bearish forecast even as it expected Brent crude, the international oil benchmark, to stabilize at around $80 a barrel.
Bhandari said, “If there is any recovery in demand next year, the global refining system will have to reach its highest utilization rate in 20 years.” The expectation is that refineries will be unable to meet demand unless they operate at full capacity.
Baden Moore, an energy analyst at CLSA, also noted that high prices have not yet reached a level that destroys demand. Moore said, “Most current demand for oil products remains unaffected,” adding that buyers are instead working around supply disruptions through inventory management, releases from strategic reserves, and optimization of refining systems. He added that it could take up to two years to meet demand while replenishing global inventories.

Goldman forecast that global refining capacity would see “negative (-) growth” this year, with capacity outside China declining by about 300,000 barrels per day.
According to Goldman’s “Refining Supercycle” report, released on the 21st of last month, oil product inventories are expected to fall by the end of this year to their lowest level since the relevant statistics began to be compiled in 2015, measured in days of supply.
Bhandari also noted that diesel supply disruptions were worsening because Middle Eastern refineries producing about 2 million barrels per day remained shut down and Russian refining facilities had been damaged. He added that further supply disruptions were possible because U.S. refineries, which are operating at full capacity and have deferred maintenance, will eventually have to shut down for repairs.

[email protected] Song Gyeong-jae Reporter