Global Oil The Refining Super Cycle (Part 4) A System Stretched for Longer

Equity Research 21 September 2026 | 10:18PM SGT

The Refining Super Cycle (Part 4): A System Stretched for Longer

Product cracks need to stay elevated to ration both end-user demand and Nikhil Bhandari | restocking demand. We expect 2026 to be another year of negative net capacity Goldman Sachs (Singapore) Pte additions in ex-China refining markets as potential ~0.3mb/d capacity additions is Amber Cai more than offset by ~0.6mb/d capacity closures (Exhibit 1). This tight capacity | Goldman Sachs (Asia) L.L.C. backdrop, combined with the historical utilization context, highlights why product cracks likely need to stay elevated for longer: the refining system cannot Neil Mehta | Goldman Sachs & Co. LLC accommodate a full demand rebound in 2027 and meaningful restocking while keeping refinery utilization at normal, sustainable levels (Exhibit 2). If 2027 product Michele Della Vigna, CFA | demand were to recover to 1% above 2025 levels while the market also attempts to Goldman Sachs Bank Europe SE - Milan rebuild half of the 2026E product inventory draw, the required refinery runs would branch

push utilization into unprecedented territory, which we do not view as operationally Randy Lau | realistic. In practice, the adjustment mechanism is therefore likely to be price-led: Goldman Sachs (Singapore) Pte

high cracks need to suppress both end-user demand and inventory restocking Alexa Petrick Breno | demand enough to bring refinery utilization back toward a feasible range. Using the Goldman Sachs & Co. LLC

highest utilization level observed over the past five years as a guide for feasible Yulia Bocharnikova | operating limits, we estimate that a potential combination of 2027 demand at 1% Goldman Sachs International below 2025 levels and no inventory restocking in 2027 would be needed to bring the refining utilization back toward that range (Exhibit 3). John Tsang | Goldman Sachs (Singapore) Pte To address investor inquiries, we run our refining supply-demand framework with a monthly path across 3 scenarios. Scenario 1 assumes global refinery runs back to normal levels by March 2027, followed by the resolution of Middle East refinery outages by June 2027 and Russian disruptions by December 2027, paired with a robust 2.9 mb/d recovery in global oil demand in 2027. Scenario 2 models a prolonged disruption, delaying the normalization of global refinery runs to October 2027. Under this scenario, Middle East and Russian refinery outages remain elevated at 5.0 mb/d above seasonal norms through the remainder of 2026 and 2027, paired with a sluggish global demand growth of 0.5 mb/d. Scenario 3 mirrors the refinery runs and outage normalization timeline as Scenario 1, but assumes a more modest global oil demand growth of 1.5mb/d. Across all 3 scenarios, we assume refinery utilization of the operating fleet returns to the highest 3-month average seen over the past 5 years post refinery runs normalization (Exhibit 4-Exhibit 5). We note total global product inventories could fall below the lowest days-of-use levels since 2015 in 4Q26 across all 3 scenarios (Exhibit 6), and OECD product inventories (inclusive of strategic reserves) in 2Q27 could fall below their historical minimum days-of-use

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