Goldman Sachs recommends gasoline as diesel shifts tighten supply

Goldman Sachs has recommended long positions in European gasoline while maintaining a bullish outlook on diesel, citing a significant supply disruption risk. The financial institution believes that diesel prices have surged to all-time highs in both the United States and Europe, largely due to the East-West pipeline halt. This has led to a rapid tightening of gasoline markets as refiners shift production from gasoline to diesel, leaving room for sharp price upside in the gasoline market.

Gasoline prices have risen 37% since March, compared to 64% for diesel. Concerns over diesel shortages and price rallies have widened the spread between U.S. diesel and gasoline to over $60 per barrel, up from below $3 a year ago. This has prompted refiners to prioritize diesel over gasoline. U.S. diesel yields have exceeded seasonal norms by 0.6 percentage points, while gasoline yields have fallen by 1.3 percentage points.

Second quarter OECD diesel refinery output has remained flat year-over-year, while gasoline refinery output has decreased by nearly 2%. Global gasoline exports have fallen by 24% year-over-year, and global diesel demand has dropped by 4% year-over-year. The bank's current commercial stocks nowcast indicates that both diesel and gasoline are 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 sharply this year compared to the seasonal norm. Global naphtha exports have been down 30% year-over-year on average, pushing U.S. octane up nearly $3 per barrel or 140% above seasonal norms.