Global oil markets may be pricing a faster recovery in war-damaged refining capacity than physical repair timelines support, with significant disruptions potentially extending into late 2027, according to new analysis from Enverus Intelligence Research (EIR).
EIR estimates approximately 7 MMbpd of Middle Eastern and Russian refining capacity is currently damaged or constrained as wars in Iran and Ukraine disrupt infrastructure and trade flows. The figure excludes routine turnarounds from approximately 11 MMbpd of refining capacity currently offline.
The disruptions have contributed to historically tight product markets and elevated refining margins. At the time of EIR’s analysis, the 3-2-1 crack spread was near $67/bbl, while the distillate crack was approximately $95/bbl, ranking in the top 1% of the past 16 years.
EIR said futures markets appear to anticipate a normalization in refining capacity during 2027 that has yet to materialize. Even if Russia-Ukraine hostilities ended immediately and no further attacks occurred, the firm estimates roughly half of severely damaged refining capacity could remain offline well into fourth-quarter 2027.
More extensively damaged refineries can require six to eight months to repair, according to EIR. Russian facilities could face longer timelines because sanctions can restrict access to replacement parts and technical expertise.
“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 and author of the report. “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.”
Absent an early end to both wars or a significant contraction in demand, EIR expects second-half 2027 3-2-1 and distillate crack spreads to trade closer to current levels than futures pricing currently indicates.
EIR also pointed to backwardated product curves as an obstacle to rebuilding inventories, as the market structure provides limited economic incentive to hold petroleum products in storage.
Source: worldoil.com