Asia refining sector: UBS sees geopolitical disruption sustaining elevated APAC refining margins through 2027

Overview

This industry report argues that prolonged Middle East disruption, refinery damage and delayed project start-ups will keep Asia-Pacific refining margins well above UBS's prior assumptions. UBS expects 2026 to remain tight and sees 2027 as dependent on the recovery of GCC supply and the delivery of delayed Indian capacity.

Core views

UBS flags an unusually tight physical refining market: 11 Mb/d of capacity was offline during August, ordinarily the lightest maintenance month. It estimates roughly 2.3 Mb/d could require multi-month repairs, comprising about 1.3 Mb/d in the GCC and 1.0 Mb/d in Russia. If Middle East product flows do not resume, outages could remain above 11 Mb/d through October. Against this backdrop, UBS's APAC refining margin averaged $32/bbl in 3Q26, up 5.6% quarter on quarter. Its base case retains a Hormuz/product-flow premium of $26/bbl in 4Q26, despite a sequential decline after summer demand; this assumes no additional drone damage and no US diesel or product-export bans. UBS notes that the US accounts for more than 20% of global diesel/gasoil trade and estimates diesel cracks could clear $120/bbl in an export-ban scenario, leaving margin risk skewed upward as the Middle East conflict enters its seventh month. For 2026, UBS forecasts global refined-product demand to decline by 0.7 Mb/d, followed by a 1.3 Mb/d recovery in 2027. It argues that the 2026 demand decline is smaller than offline capacity and delayed refinery starts, which should support APAC cracks. The report characterizes 2027 as the key fork: easing depends on delayed Indian capacity being commissioned and GCC refinery runs recovering. Around 75% of the project-start lag in UBS's tracker is now in 2027, while Dangote's expansion is not expected until late 2029. Conversely, if product flows remain impaired, UBS believes the 2027 demand recovery could create a short market and strategic inventories could rebuild above historical levels. China product exports rose from 0.2 Mb/d at the beginning of the conflict to more than 0.6 Mb/d in September, still below the late-2022 historical high of 1.6 Mb/d; crude-delivery risks could reduce these exports, while a near-term resolution could loosen them. UBS therefore raises its APAC gross refining-margin assumptions to reflect a longer Middle East disruption and greater Russian refinery damage than it had previously assumed. Even an early-October resolution would leave undamaged facilities roughly six weeks away from adding supply. The FY26 margin forecast increases to about $26/bbl from $11/bbl, and the FY27 forecast to $15.5/bbl from $5.6/bbl, based on repairs to around 1 Mb/d of damaged capacity extending into 1H27. UBS models $26/bbl for 4Q26 versus $32/bbl in 3Q26, citing feedstock competition and seasonally lower demand. It also raises 2028-30 estimates because of heavier maintenance, more outages and inventory rebuilding. Within regional equities, UBS identifies S-Oil as its top APAC pick, citing leverage to geopolitical margin premiums, potential petrochemical upside from the Shaheen expansion, and balance-sheet deleveraging; UBS raises its target price by 54% to Won200k. UBS says Thai refiners should benefit from a tight global refining market because of their high middle-distillate exposure, although government intervention could limit earnings pass-through. It prefers PTT Global Chemical as a laggard versus peers, arguing that its gas cracker provides near-term polyethylene leverage and a more balanced way to capture a Hormuz premium.

Analysis framework

UBS combines a global refinery project and outage tracker with demand forecasts, capacity-repair assumptions, product-flow analysis and regional refining-margin estimates. It then translates the sector outlook into company preferences based on exposure to refining margins, product mix, petrochemical projects and balance-sheet factors.

Methodology notes

• Industry AnalysisSupply-demand framework

  Refining supply-demand balance

  UBS compares offline and delayed refining capacity with changes in global refined-product demand to assess whether APAC margins remain supported.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Product-flow and refinery-outage transmission

  The report links disruption to Middle East product flows, crude delivery, Chinese exports and diesel trade with refining-margin outcomes.

• Other

  UBS Global Refining project tracker and Refiners Construction Monitor

  UBS uses its tracker and Evidence Lab construction-monitor data to judge project delays, capacity start timing and the supply outlook.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• S-Oil

  UBS's top APAC pick, positioned to benefit from geopolitical refining-margin premiums.

  Strengths

  Leverage to margin premiums, petrochemical upside from the Shaheen expansion, and balance-sheet deleveraging.

  Comparison

  Preferred by UBS over other APAC refining exposures.

  Risks

  Subject to sector risks including volatile margins and potential product-price intervention.

• PTT Global Chemical

  Preferred as a laggard versus peers and as a more balanced exposure to a Hormuz premium.

  Strengths

  Its gas cracker adds near-term polyethylene leverage.

  Comparison

  UBS views it as a laggard to peers.

• Thai refiners

  Potential beneficiaries of tight global refining conditions.

  Strengths

  High middle-distillate exposure.

  Weaknesses

  Government intervention may limit the earnings pass-through.

  Risks

  Government intervention in product pricing and inventory losses if global oil prices decline sharply.

Key data

• Offline refining capacity11 Mb/dOffline in August; outages could remain above 11 Mb/d through October if Middle East product does not flow.
• Likely multi-month repairs~2.3 Mb/dApproximately 1.3 Mb/d in the GCC and 1.0 Mb/d in Russia.
• 3Q26 APAC refining margin$32/bblUp 5.6% quarter on quarter.
• 4Q26 APAC refining-margin forecast$26/bblBelow 3Q26 due to feedstock competition and seasonally lower demand.
• FY26 APAC refining-margin forecast~$26/bblRaised from $11/bbl.
• FY27 APAC refining-margin forecast$15.5/bblRaised from $5.6/bbl; assumes repairs to about 1 Mb/d extend into 1H27.
• Global refined-product demand-0.7 Mb/d in 2026; +1.3 Mb/d in 2027UBS expects the 2026 decline to be smaller than outage and delayed-start effects.
• China product exportsAbove 0.6 Mb/d in SeptemberUp from 0.2 Mb/d at the conflict's start but below the late-2022 high of 1.6 Mb/d.
• S-Oil target priceWon200kRaised 54% by UBS.

Impact & implications

UBS believes the constrained supply backdrop supports APAC refining margins beyond the near-term conflict premium, with the degree of 2027 easing dependent on GCC recovery and delayed Indian capacity. It favors S-Oil for direct margin-premium leverage and sees Thai refiners and PTT Global Chemical as beneficiaries with differing exposures.

Risks

• Government intervention in product pricing could affect Asian refiners if global oil prices spike materially.
• Mechanical failure at refinery plants is a risk.
• A sharp decline in global oil prices could create inventory stock losses for refiners such as those in Thailand and materially affect quarterly margins.
• Refining margins are highly volatile.
• Changes in UBS's global GDP and demand-growth outlook could affect its margin forecasts.
• Higher or lower transportation-fuel exports from China would affect UBS's margin assumptions.

What to watch

• Whether Middle East product flows resume and whether further drone damage occurs.
• The timing and scale of repairs to GCC and Russian refinery capacity.
• Whether delayed Indian refinery capacity begins operating in 2027 and GCC runs recover.
• Chinese transportation-fuel export volumes and crude-delivery conditions.
• Potential US diesel or product-export restrictions.
• The trajectory of global demand, oil prices and government product-pricing intervention.