UBS Doubles Refining Margin Forecast#
UBS has announced a major revision to its 2026 forecast for the European composite refining margin, raising it from $7.5 per barrel to $14.8 per barrel. This adjustment is largely attributed to recent strikes on energy infrastructure in the Middle East, which have disrupted over 3.5 million barrels per day of refining capacity in the region.
Impact of Supply Disruptions#
The brokerage highlights that key refineries in Bahrain and Kuwait, which together account for approximately 800,000 barrels per day, may take several months to repair. This disruption affects about 30% of the total refining capacity in the Middle East, which stands at around 12 million barrels per day. Currently, the European composite margin is nearing 2022 highs, reaching about $33 per barrel.
Jet Fuel and Diesel Margins on the Rise#
The most significant pressure is being felt in the jet fuel market. UBS has raised its second-quarter jet fuel margin estimate from $20 per barrel to $65 per barrel. This is critical as around 25% of Europe’s jet fuel supply comes through the Strait of Hormuz. UBS warns that without a swift resolution to these issues, there could be fuel shortages in the coming months.
For diesel, the margin forecast has also seen a substantial increase, rising from $20 per barrel to $50 per barrel for the second quarter, before settling at $35 per barrel for the full year of 2026.
Broader Market Implications#
UBS has also adjusted its refining margin estimates for the U.S. and Asia-Pacific regions, raising the U.S. estimate to $26.1 per barrel and Asia-Pacific to $11.0 per barrel. Additionally, the brokerage has increased earnings estimates for European companies with significant refining operations by about 28% on average. However, they have moved Tupras and Orlen to a neutral rating due to their sensitivity to refining margins and European gas prices.
UBS has noted a heightened likelihood of government intervention in the market, referencing existing fuel price controls in Hungary and Greece, as well as tax cuts in Turkey. Further export restrictions and windfall tax measures may also pose risks to the refining sector.