What Is the Outlook for Diesel and Gasoline Supplies?

0:04This is The Markets. I'm Chris Hussey, and today is Wednesday, August 26th, and we're here on the Goldman Sachs trading floor with Nitin Jindal, who heads up our global commodities business within global banking and markets. Nitin, thanks so much for joining us on The Markets. It's a pleasure. Thank you. OK, I want to start with a breaking point question because we're about to celebrate, celebrate's not the right word, the sixth straight month of the Strait of Hormuz being closed. Has it surprised you that this has not disrupted the commodity markets more or do you think we really are at a breaking point?

0:38Several things have surprised me, right? First, just the length of the war. That's surprising. But it shouldn't be surprising given what's happening in Europe, where we are at a four and a half year point and nobody would have ever predicted at any point that that conflict would go this long. The other thing which is very surprising is how resilient the market has been in terms of finding supplies and not actually breaking down. There are several things which were done, several protective measures which were taken. Still, we have a major, epically major disruption in the market, and prices are within a tolerable range.

1:18Okay, let me explore this one element around inventories, because some of the pictures I've been seeing lately is oil inventories are coming down now. And they're down to levels where we haven't seen them normally. Does that get you concerned that we're going into a place where we just have no more oil to give back and we're finally going to get that breaking point? If you were asked me that question two months ago, my answer would have been absolutely yes. We were heading into the highest demand window, which is typically summer. Now we are kind of getting out of that demand window and we were fine in the summer window.

1:52So especially for crude oil, I don't think we'll break in next few months. products might be a different story. We have a very tight products market. The refining complex stays tight. We are getting less product out of Persian Gulf. We are getting less product out of Russia due to attacks on Russian refining by Ukraine. We are not getting products out of China due to just preservation. So the world ex-Persion Gulf, ex-Russia, ex-China is tight products, and there is no immediate release wall which is coming. Having said that, prices are already high. So what we like is we like the roll-up which exists in the market, especially in crack spread.

2:35Let me explore China for a little bit, if we can, because China has been an area which has had some demand destruction to help out with everything that's taking place. Can we see any more demand destruction out of China, or is that all we've got? It's highly unpredictable. Six months ago, nobody could have predicted that China could adjust by that much amount. But now that we have seen it, let's look at the hard data which makes it happen. China sells 34 million cars a year right now. So their fleet is growing rapidly, but a lot of it is EV. Hence, they can switch from gas to electric easy. Their electricity sector is also growing rapidly.

3:18Last year, they installed 500 gigawatts of new capacity Mostly solar, some wind, some batteries, some gas. To put it in perspective, the U.S. only installed 50 gigs. And hence, they have no shortage of electricity. They can easily switch if needed without using more hydrocarbons. I would be surprised they can do a lot more. But I would also not be shocked if they did more. Okay. So one last commodity I wanted to talk about was NatGas, because there's a commodity that's more to do with Europe maybe than China. But China needs NatGas. If they can't get it from the Middle East, they might take it from the U.S.

4:04and then not enough gets to Europe. How much trouble will Europe get in if the Strait of Hormuz isn't reopened here and they can't get the LNG out to the right spots? In the short term, it really depends on what happens this winter weather, right? Like you must have also heard this term El Nino. El Ninos are warm. So if you have a warm, if you have this El Nino, which turns out to be very warm, you know, the world is going to get bailed out because the swing in gas demand due to weather is so strong that you can easily manage the supply disruption. And if you go past this season, there was so much oversupply coming from like U.S., Australia, that you could see a balanced market.

4:48Now, that's only true if you get a very, very warm winter. If you get a normal winter, you have a very tight setup going into this winter. If you get a normal winter, China will literally need to back off because Europe would then compete. And Europe would not just compete for gas. Europe would compete for gas and coal, both very important fuels for China. The flip side to that is that China itself produces about 30 BCF a day of natural gas. They have been growing their production. So if you look at last year or so, China has stopped taking more LNG than what they used to historically take. Can they actually adjust that down by 20 %?

5:33Probably. But that's not enough to offset the supply loss we have from Qatar. Yeah, I guess the ironic good news here is there's a super El Nino taking place here, which suggests normal weather might be less likely than normal. OK, put a bow on all this. What's the trade? We like being long crack spreads, right? Specifically, term like Cal 27 cracks are not, you know, pricing continued disruption. We like being long Asian hydrocarbons versus U.S. hydrocarbons. We think the freight market is tight. It will continue to stay tight. If you look at Panama Canal is very tight right now. You cannot simply relieve all these supply chain logistics quickly.

6:16But when you, again, look at the forward freight market, it's not fully pricing all these dislocations. We like gold as a debasement trade. We like U.S. nat gas as well going into this winter, again, assuming normalish winter. So those are big themes we like. We like U.S. power market on the AI theme. Okay. What are you looking for in the couple of weeks ahead here? Bring the summer to an end. Looking back for kids to go to school. And I have a trip coming up in Europe next month. All right. Great. And hopefully in the middle of all that, you'll be able to watch a little cricket and see if India can beat Sri Lanka.

6:58Well, I'll let you know tomorrow. Thank you so much. That does it for this week's episode of The Markets. I'm Chris Hussey. Thanks for listening.

7:31Nitin Jindal: This material may contain forward-looking statements. Past performance is not indicative of future results. Neither Goldman Sachs nor any of its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the statements or information contained herein, and disclaim any liability whatsoever for reliance on such information for any purpose. Each name of a third-party organization mentioned is the property of the company to which it relates, is used here strictly for informational and identification purposes only, and is not used to imply any ownership or license rights between any such company and Goldman Sachs.

8:00Nitin Jindal: A transcript is provided for convenience and may differ from the original video or audio content. Goldman Sachs is not responsible for any errors in the transcript. This material should not be copied, distributed, published, or reproduced in whole or in part, or disclosed by any recipient to any other person without the express written consent of Goldman Sachs. Copyright 2026 Goldman Sachs. All rights reserved.