Key insights
- Goldman Sachs analyzes the impact of a potential Strait of Hormuz closure on diesel and gasoline inventories. A shift towards higher diesel yields could negatively impact gasoline production. The analysis suggests that even with SPR releases and demand destruction, gasoline inventories could fall below critical levels in a prolonged closure scenario, potentially leading to higher gasoline prices and negatively impacting consumer discretionary spending.
Investing.com - Goldman Sachs estimates that a 1 percentage point rise in the U.S. diesel yield reduces the finished motor gasoline yield by 0.8 percentage points, with refiners switching to diesel when margins favor that fuel over gasoline.
The firm recently estimated that OECD commercial diesel stocks would likely stay above critical levels through end-2026 even if the Strait of Hormuz remained closed, provided higher diesel prices activate at least two of three factors: a 1 percentage point additional diesel yield gain, 0.6 million barrels per day of additional Strategic Petroleum Reserve releases, or 3% additional demand destruction.
Despite unseasonably high diesel and jet fuel yields, the U.S. gasoline yield remains unusually robust, likely reflecting destocking of blending component inputs. Goldman Sachs estimates that a $10 increase in the 3-2-1 refining margin boosts the global refining utilization rate by 1.3 percentage points, though margins may need to rise more now to generate a given increase above seasonal norms.
In an unlikely scenario of persistent Strait closure without additional increases in diesel share of refinery output, refinery utilization rates, demand destruction, or diesel SPR releases, OECD commercial diesel and gasoline inventories would likely reach an estimated critical threshold of 20 days of demand covered in August and October, respectively.
In a persistent closure scenario with a 1 percentage point increase in the diesel yield and demand destruction, OECD commercial stocks would likely stay above the 20-day threshold through end-2026 for diesel but reach the threshold in December for gasoline.
Ensuring that OECD commercial stocks for both diesel and gasoline stay above the estimated critical threshold through end-2026 in a persistent closure scenario likely requires a combination of additional significant demand destruction for diesel of 3% and gasoline of 4%, which would very likely imply higher prices for both products. The scenario also requires either a further 1 percentage point increase in the global refining utilization rate or 0.6 million barrels per day of SPR diesel releases.
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