UBS on Friday substantially increased its forecast for refining margins in 2026, citing a wave of strikes on Middle Eastern energy infrastructure that has taken in excess of 3.5 million barrels per day of regional refining capacity offline. The brokerage now expects a 2026 European composite refining margin of $14.8 per barrel, up from its prior estimate of $7.5 per barrel.
In its note, UBS identifies specific facilities that are likely to require extended repair periods, including Bahrain’s 400,000 barrel-per-day Sitra refinery and two Kuwaiti complexes - Mina Abdullah and Mina Al-Ahmadi - which together amount to roughly 800,000 barrels per day of capacity. The affected outages account for about 30% of the region’s refining capacity, which UBS places at approximately 12 million barrels per day.
Market signals already reflect heightened tightness. UBS points out that spot European composite margins are approaching 2022 highs, at about $33 per barrel.
Fuel-specific pressure points
Jet fuel is the segment under the most acute strain, the brokerage says. UBS raised its second-quarter jet fuel margin forecast to $65 per barrel from $20 per barrel previously, highlighting that roughly 25% of Europe’s jet fuel consumption arrives via the Strait of Hormuz. UBS warned that, "Without the fast resolution even accounting for state reserve releases, there could be risks of fuel shortages in some part of the barrel over the next two-three months."
Diesel margins were also revised sharply higher for the near term. UBS now projects second-quarter diesel margins at $50 per barrel, up from a prior $20 per barrel estimate, before easing to $35 per barrel for full-year 2026. For 2027, the brokerage raised its European composite margin estimate by 42%, to $6.0 per barrel.
Broader regional adjustments
UBS extended its margin revisions beyond Europe. The U.S. composite margin forecast for 2026 was raised to $26.1 per barrel from $16.6 per barrel, while the Asia-Pacific composite for 2026 was lifted to $11.0 per barrel from $4.8 per barrel.
The brokerage noted that the supply disruption in the Middle East is compounded by export restrictions elsewhere. China has announced a ban on refined product exports, and Russia is reportedly in active discussions about taking similar measures, according to UBS.
Implications for refiners and markets
As a result of the margin revisions, UBS increased earnings estimates for European refiners with greater refining exposure by about 28% on average and raised analyst price targets by roughly 22% on average.
Despite the upgrades, UBS adjusted recommendations for specific names, moving Tupras and Orlen from "sell" to "neutral." The brokerage cited Tupras’ and Orlen’s sensitivity to refining margins and, in Orlen’s case, to European gas prices. Both companies were assigned Core Banding Exception ratings because of above-average volatility - Tupras with a 25% band and Orlen with a 15% band, versus a standard 6% threshold. UBS reported market prices as of March 19: Orlen at PLN133.20 and Tupras at TRY253.25.
Policy risks and possible interventions
UBS flagged an elevated chance of government intervention as officials reckon with higher fuel costs. The brokerage referenced measures already taken in some countries, including fuel price or margin caps in Hungary and Greece and tax cuts in Turkey. It said further export controls and windfall tax measures remain possible risks.
The brokerage’s guidance underlines how significant outages in a concentrated refining region, combined with export constraints, can rapidly lift margins and create both near-term supply pressure and political responses that could affect market dynamics.