Goldman Sachs recommends gasoline as diesel shifts tighten supply

Investing.com -- Goldman Sachs closed its long March 2027-December 2027 European diesel timespread recommendation with a potential gain of $11 per barrel or 45% as diesel prices have risen sharply and now incorporate a large premium for risks of further supply disruptions. The bank now recommends long summer European gasoline, specifically EBOB June 2027.

Diesel prices continue to trade close to their all-time highs in the United States and Europe as the halt of the East-West pipeline further disrupts crude supplies to refineries. The bank said refiners switching output from gasoline to diesel is rapidly tightening gasoline markets, where less elevated price levels leave room for sharp price upside if the Middle East and Russia-Ukraine conflicts continue to constrain refining output.

June 2027 European prices have risen 37% since March for gasoline compared with 64% for diesel. Concerns about diesel shortages and the resulting price rally increased the spread between U.S. diesel and gasoline to over $60 per barrel versus below $3 a year ago, encouraging refiners to prioritize diesel over gasoline.

U.S. diesel yields exceeded seasonal norms in March through August by 0.6 percentage points at the expense of a 1.3 percentage point undershoot in gasoline yields. Second quarter OECD diesel refinery output remains nearly flat year-over-year, while gasoline refinery output decreased by nearly 2%. Global gasoline exports are down 24% year-over-year.

Global diesel demand fell 4% year-over-year in May through July on average, while global gasoline demand has been more resilient. The bank's OECD commercial stocks nowcast shows both diesel and gasoline near the bottom of their seasonal ranges. U.S. diesel stocks have built counter seasonally over the last three weeks, while OECD gasoline stocks have trended down more sharply this year versus the seasonal norm.

Global exports of naphtha have been down 30% year-over-year on average over the last five months, pushing U.S. octane nearly $3 per barrel or 140% above seasonal norms.

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