The global energy market entered the week with a sharp distinction between recovering crude flows and increasingly constrained refined-product supply. Goldman Sachs now expects diesel prices and refining margins to remain elevated through 2027, as refineries struggle to accommodate recovering consumption and governments and companies rebuild depleted inventories.

Refining Capacity Is Becoming the Binding Constraint

The central issue is no longer simply the availability of crude oil, but the market’s ability to convert crude into diesel, jet fuel and other middle distillates. Goldman expects refining capacity outside China to contract by approximately 300,000 barrels per day in 2026, while around 2 million barrels per day of Middle Eastern refining capacity remains offline. Damage to Russian facilities and deferred maintenance at U.S. refineries add another layer of supply risk.

That imbalance helps explain why refined-product prices can remain high even if crude prices eventually normalize. Goldman expects Brent crude to stabilize around $80 per barrel as flows through the Strait of Hormuz recover, yet forecasts global diesel and jet-fuel crack spreads above $40 per barrel in 2027, compared with a more typical level near $20.

G7 Reserve Releases Offer Relief, But Not a Structural Fix

The G7 has agreed to release up to 100 million barrels of diesel, crude and other refined products through coordinated strategic reserves, with a substantial portion of diesel expected to enter the market quickly. The move has already contributed to easing immediate supply concerns, while Middle Eastern crude flows have also improved.

However, emergency inventories cannot permanently replace refining capacity. The market response this week illustrates the distinction: Brent crude fell more than 2% on Tuesday as supply concerns eased, yet refined-product availability remains considerably tighter.

Inflation and the Israeli Investor Perspective

Persistently high diesel prices carry implications well beyond the energy sector. Diesel is embedded in freight, agriculture, manufacturing and construction costs, meaning prolonged elevated prices could keep global inflation pressures higher than expected even if crude oil retreats. For Israeli investors, the transmission channel is particularly relevant through imported energy costs, transportation expenses, the shekel-dollar exchange rate and potential effects on domestic inflation expectations.

The broader market impact is therefore likely to depend on whether the refining bottleneck proves temporary or structural. High margins could encourage additional refinery utilization and investment, but the lag between investment decisions and new capacity means supply may remain constrained for an extended period.

Looking ahead, investors will need to monitor refinery restart schedules, inventory levels, Middle Eastern product exports, Russian refining capacity and global diesel demand. A sustained recovery in crude flows could reduce the geopolitical premium, but it would not necessarily eliminate the refined-product shortage. Conversely, renewed disruptions around key shipping routes or additional refinery outages could prolong elevated diesel prices and increase pressure on inflation, corporate margins and global monetary-policy expectations.