Goldman Sachs Group has indicated that gasoline prices are poised to extend their rally as tightness across global fuel markets intensifies. The bank has recalibrated its trading strategy, shifting its primary focus from diesel to gasoline, the widely used motor fuel. Analysts, including Yulia Zhestkova Grigsby and Daan Struyven, noted in a report that a key driver behind this new recommendation is that refiners are diverting production away from gasoline toward diesel, a move that is rapidly tightening the gasoline market.
This year, US-Iran conflicts and the Russia-Ukraine war have jointly disrupted global fuel markets, with Ukrainian strikes on Russian refineries adding significant pressure. In the United States, diesel futures settlements have reached record levels, and average retail diesel prices have climbed to historic highs, with refined product price increases far outpacing gains in crude oil. In a September 16 report, Goldman analysts stated that while diesel could see further advances, gasoline currently presents a "greater price upside opportunity," citing more resilient demand and shifts in inventory levels. Consequently, the bank has closed out its previous positions on different diesel contract spreads, known as time spreads, and now recommends going long on European gasoline for mid-2027.
Additionally, earlier this month, Goldman warned that international oil prices could surge to $120 per barrel if attacks on shipping in the Middle East escalate further. However, rather than directly betting on crude, the bank suggested that investors focus on long positions in refined products such as European natural gas and diesel to hedge geopolitical risks, as these markets face potentially more severe supply disruptions than crude oil.
Rally in US Refiner Stocks Fueled by Global Supply Tightness
The surge in Middle East conflicts this year has driven oil prices higher, lifting energy stocks along with them. US supermajors Exxon Mobil Corp (NYSE: XOM) and Chevron Corp (NYSE: CVX) have seen their shares rise approximately 40% year-to-date, but American refiner stocks have performed even better, given that global refined product markets are far tighter than the crude market. Shares of Phillips 66 (NYSE: PSX), Valero Energy Corp (NYSE: VLO), and Marathon Petroleum Corp (NYSE: MPC) have all surged more than 100% so far this year, buoyed by a fuel market that continues to tighten amid disruptions to over 7 million barrels per day of refined product supply from the Middle East and Russia.
During Marathon Petroleum's second-quarter earnings call last month, Chairman, President, and CEO Maryann Mannen highlighted the severity of the situation: "Global refined product balances remain exceptionally tight, with gasoline and diesel inventories at some of the lowest levels we have ever seen." Similarly, in early August, Phillips 66 CEO and Chairman Mark Lashier stated on a Q2 earnings call: "This is more of a supply shock than a demand shock. A significant amount of refining capacity is offline, and inventories are very low." He added, "We believe it will take considerably longer for this situation to normalize than it did in 2022." All three companies—Phillips 66, Valero Energy, and Marathon Petroleum—have reported better-than-expected second-quarter earnings and anticipate maintaining high margins through year-end and into next year, as refined product inventories remain critically low and global refining capacity cannot offset the supply losses from the Middle East and Russia.