Goldman Picks Gasoline Over Diesel on Fundamentals, Valuation

Goldman Sachs is now recommending investors to be bullish on gasoline contracts, citing more valuation upside and tighter market fundamentals for gasoline following maximum diesel refinery production since the Iran war.

The investment bank in a Wednesday note suggested investors buy European gasoline futures dated summer 2027 as a hedge against further geopolitical escalation and structural refining tightness.

Refiners have been focused on maximizing diesel production at the expense of gasoline, which is “rapidly tightening” gasoline supplies, the bank said.

Gasoline’s relatively cheaper valuation compared with that of diesel also leaves room for more gasoline price gains, especially if the Middle East and Russia-Ukraine conflicts continue to disrupt normal global refinery operations, Goldman said.

The U.S. bank said it would require significantly higher prices to reduce gasoline demand, as global gasoline consumption has been more resilient compared with that of diesel since the start of the Iran war.

Also, gasoline stocks held in the developed OECD countries have trended down more sharply compared with those for diesel so far this year, Goldman said.

In addition, the bank cited a tightening supply of naphtha, which is used as a gasoline blending component. Global exports of naphtha have been down 30% year on year over the last five months, pushing U.S. octane nearly $3/bbl higher, or more than double seasonal norms, it said.

The bank said it prefers European gasoline contracts rather than U.S. contracts due to potential U.S. refined product export restrictions and a higher level of American net managed money compared with that in Europe.

Reporting by Frank Tang, frank.tang@dowjones.com; Editing by Michael Kelly, mkelly@opisnet.com