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Prolonged Refinery Disruptions May Keep Product Markets Tight Through 2027, Enverus Says

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War-damaged refining capacity may remain offline longer than forward markets expect, keeping oil product markets and refining margins under pressure, Enverus Intelligence Research said in a Tuesday note.

The conflicts in Iran and Ukraine have reduced available refining capacity and altered oil trade patterns, leaving product supplies tight as markets anticipate a quicker return to normal.

"The market is pricing a fairly rapid normalization in refining capacity and product balances through 2027, but the physical recovery may take much longer," said Al Salazar, director at EIR.

EIR said forward prices treat the disruptions as temporary, but the damaged refining capacity could take significantly longer to recover than current market expectations indicate.

"Even if hostilities were to end soon, repair timelines suggest a meaningful portion of damaged capacity could remain offline well into next year," Salazar said.

Refining capacity in the Middle East and Russia has taken a major hit, with about 7 million barrels per day affected. Routine turnarounds account for part of the roughly 11 million b/d currently offline.

Tight product supplies have pushed refining economics higher, with the 3-2-1 crack near $67 per barrel and the distillate crack around $95/bbl, both among the highest levels in 16 years.

EIR expects the recovery to stretch into late 2027, estimating that about half of the severely damaged refining capacity could still sit idle through Q4 2027.

Repair work could extend for six to eight months after major refinery damage. Russian plants may face even longer delays if sanctions restrict access to equipment, parts and technical expertise.

EIR expects refining margins to stay elevated through the second half of 2027 unless the Iran and Ukraine wars end early or weaker demand reduces pressure on product markets.

Oil markets also face a storage challenge because backwardation makes it less attractive for traders to keep products in inventory, which could slow the stock rebuilding assumed in current prices.

"With inventories still tight and forward curves offering little incentive to rebuild stocks, we think refining margins could stay elevated for longer than the strip currently implies," Salazar said.

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