Key insights
- UBS significantly raised its refining margin outlook globally, particularly in Europe, due to Middle East supply disruptions and export restrictions from China and potentially Russia. This could lead to higher energy prices, especially for jet fuel and diesel, impacting transportation costs and potentially contributing to inflationary pressures in the US. The increased refining margins also suggest higher profitability for US-based refiners.
Investing.com -- UBS on Friday has more than doubled its 2026 European composite refining margin forecast to $14.8 per barrel from $7.5 per barrel, citing strikes on Middle East energy infrastructure that have knocked out more than 3.5 million barrels per day of regional refining capacity.
The brokerage estimates at least Bahrain’s 400,000 barrel-per-day Sitra refinery and Kuwait’s Mina Abdullah and Mina Al-Ahmadi refineries, totaling approximately 800,000 barrels per day, could require several months of repairs.
The affected capacity represents roughly 30% of total refining capacity in the region, which stands at approximately 12 million barrels per day, according to the note.
Spot levels for the European composite margin are already testing 2022 highs of approximately $33 per barrel, UBS said.
The tightest pressure point is jet fuel. UBS raised its second-quarter jet fuel margin estimate to $65 per barrel from $20 per barrel previously, noting that roughly 25% of Europe’s jet fuel consumption was supplied through the Strait of Hormuz.
"Without the fast resolution even accounting for state reserve releases, there could be risks of fuel shortages in some part of the barrel over the next two-three months," the brokerage said.
Diesel margins are forecast at $50 per barrel in the second quarter, up from a prior estimate of $20 per barrel, before easing to $35 per barrel for full-year 2026. The 2027 European composite margin estimate was raised 42% to $6.0 per barrel.
UBS also lifted its U.S. composite margin estimate to $26.1 per barrel for 2026 from a prior $16.6 per barrel, and its Asia-Pacific composite to $11.0 per barrel from $4.8 per barrel.
The disruption is compounded by export restrictions elsewhere. China has announced a ban on refined product exports, and Russia is in active discussions on similar measures, UBS noted.
The brokerage raised earnings estimates for European names with higher refining exposure by approximately 28% on average and price targets by approximately 22%.
Despite those upgrades, UBS moved Tupras and Orlen to “neutral” from “sell,” citing their sensitivity to refining margins and European gas prices respectively. Both carry Core Banding Exception ratings due to above-average volatility, Tupras at a 25% band and Orlen at 15%, compared to the standard 6% threshold. Orlen traded at PLN133.20 and Tupras at TRY253.25 as of March 19.
UBS flagged an increased likelihood of government intervention, pointing to fuel price or margin caps already introduced in Hungary and Greece, and tax cuts in Turkey. Further export controls and windfall tax measures remain possible risks, the brokerage said.