JPMorgan raises 2026 Asia refining GRM to $30/bbl, arguing that the refining “golden age” is now consensus

Overview

This is a JPMorgan research report on the APAC refining sector. The report argues that Asian diesel crack spreads have rebounded sharply from the late-June low, driven by improved backup power demand, higher LNG prices, China’s return to the LNG market, European restocking, and renewed Middle East supply risks. Against a backdrop of low global oil product inventories, constrained product exports from China and Russia, and continued disruption from Middle East conflict, JPMorgan raises its 2026 Asia GRM forecast from $25/bbl to $30/bbl and continues to view a $10/bbl GRM in 2029-2030 as the new medium- to long-term normal.

Core views

The core views include: first, Houthi attacks on facilities related to Saudi Aramco’s Jizan and Yanbu, while currently judged not to have caused extensive damage, could threaten Saudi product exports and thus amplify an already tight market gap. Second, global refining capacity additions in 2026-2030 are expected to average only +0.5mbd/y, below product demand growth of 0.8mbd/y, with refining utilization expected to rise from 81% in 2025 to 86% in 2030. Third, the Russia-Ukraine war, Middle East conflicts, and unplanned maintenance push offline capacity in 2026 to elevated levels, driving global refining utilization close to a 20-year high. Fourth, although high oil prices and logistics costs will create inflationary pressure, the report believes inventories and restocking behavior make the probability of large-scale fuel shortages or industrial disruption lower than the risk of price increases.

Analysis framework

The report uses refining margins, crack spreads, global refining utilization, oil product exports, inventory levels, logistics costs, government intervention, and valuation sensitivity as its analytical framework. The authors first explain recent strength in diesel and middle distillate prices through Middle East supply disruptions and low inventories, then argue for a higher GRM midpoint through supply-demand balance and insufficient capacity additions, and finally assess upside and downside for refining stocks such as SKI, S-Oil, TOP, and FPCC using EPS/DPS sensitivity under different 2028 GRM scenarios.

Methodology notes

• Industry supply-demand analysisGRM and crack spread framework

  Use indicators such as GRM, diesel crack spread, gasoline crack spread, and naphtha crack spread to measure refining profitability.

  The report raises its 2026 GRM forecast to $30/bbl and assumes a diesel crack spread of $61/bbl to derive earnings upgrades for refining and chemical companies.

• Capacity cycle analysisRefining utilization and net capacity additions

  Compare refining capacity additions with product demand growth to judge the midpoint of refining utilization and profitability.

  The report expects global refining capacity additions in 2026-2030 to average +0.5mbd/y, below product demand growth of 0.8mbd/y, supporting refining utilization rising from 81% to 86%.

• Scenario analysisBull/base/bear GRM scenarios

  Use different 2028 GRM assumptions to estimate EPS and DPS sensitivity for refining stocks.

  The bull case uses a 2028 GRM of $20/bbl, while the bear case uses the historical average GRM of $7/bbl; the report notes that FPCC, S-Oil, TOP, and SKI have significant upside versus consensus EPS in the bull case, while S-Oil and TOP have relatively high downside sensitivity in the bear case.

• Policy and geopolitical risk analysisNational service obligations and supply disruptions

  Assess the impact of price controls, export restrictions, compensation mechanisms, logistics insurance costs, and Middle East supply disruptions on refining company earnings.

  The report believes Chinese refiners are most affected by domestic price controls, export restrictions, import dependence, and logistics costs; Korea and Thailand also face government intervention, but Korea has a higher export ratio and may receive compensation, while Thai refiners trade at a significant valuation discount.

Asset mapping & comparison

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

• SK Innovation

  Ranks near the top of JPMorgan’s APAC refining preference list; the report maintains Overweight.

  Strengths

  Clearly benefits from a strong GRM cycle; the report ranks it SKI > TOP > FPCC > S-Oil.

  Weaknesses

  Still exposed to profit volatility if the refining cycle turns down or geopolitical disruptions ease.

  Comparison

  Ranks first among the four key refiners, above TOP, FPCC, and S-Oil.

  Risks

  If GRM falls back to the historical average, the earnings upgrade thesis would weaken.

• Thai Oil Public Company

  The report maintains Overweight and assigns a Jun-27 target price of Bt80.

  Strengths

  Trades at a significant valuation discount relative to Korean refiners and benefits from strong refining margins.

  Weaknesses

  Thai government intervention in diesel prices will suppress part of profits.

  Comparison

  Ranks second among the four key refiners, below SKI and above FPCC and S-Oil.

  Risks

  Diesel price controls, export restrictions, and high EPS sensitivity under a downside GRM scenario.

• Formosa Petrochemical Corp

  The report maintains Overweight and raises the Jun-27 target price to NT$100.

  Strengths

  Taiwan’s only listed refiner, with refining, naphtha cracking, and coal-fired power assets; benefits from export margins and its own fleet reducing VLCC freight exposure.

  Weaknesses

  Free float is relatively low, and the chemicals business is still in the loss-recovery stage.

  Comparison

  Ranks third among the four key refiners; compared with S-Oil, it is less sensitive to a GRM downturn.

  Risks

  Higher logistics and freight costs, unplanned outages, and inventory losses caused by a sharp oil price decline.

• S-Oil Corp

  The report maintains Overweight, but it ranks lower among the four key refiners.

  Strengths

  Highly benefits from a high GRM cycle and Korea’s higher export ratio.

  Weaknesses

  High sensitivity to GRM; the report points out that EPS downside risk is substantial in the bear case.

  Comparison

  Ranks fourth among SKI, TOP, FPCC, and S-Oil.

  Risks

  If 2028 GRM returns to the historical average of $7/bbl, S-Oil could face significant EPS downside risk; there are also valuation and leverage pressures.

• Sinopec / Hengli / Rongsheng

  The report maintains a more cautious stance on Chinese refiners.

  Strengths

  Possess scale and domestic market positioning.

  Weaknesses

  Domestic price controls, export bans, high crude import dependence, and high logistics costs create the greatest national service risk.

  Comparison

  The report maintains Neutral on Sinopec rather than placing it in the preferred Overweight group.

  Risks

  Negative domestic refining margins, policy restrictions, and limited export exposure may suppress earnings elasticity.

Key data

• 2026 Asia GRM forecast$30/bblRaised from the previous $25/bbl, reflecting demand improvement and supply risks after the Houthi attacks.
• Long-term GRM new normal$10/bblAbout 43% above the historical average of $7/bbl over the past 20 years.
• 2026 diesel crack spread assumption$61/bblThe report says this assumption already includes a de-escalation scenario from current elevated levels.
• Global refining capacity additions in 2026-2030+0.5mbd/yBelow product demand growth of 0.8mbd/y.
• Refining utilization path81% in 2025; 86% in 2030Insufficient capacity additions and demand growth together push utilization higher.
• Offline refining capacity in the Middle East, Russia, and elsewhere4.1mbd in 2026The report sees this as a key reason for high utilization and high GRM in 2026.
• Saudi oil product export shareAbout 1.4mbd after the conflict, accounting for about 53% of Middle East exportsIf Saudi exports are disrupted, the product market could tighten further.
• FPCC target priceNT$100Based on 2x one-year forward P/B; the report maintains Overweight.
• FCFC target priceNT$80Target price raised, mainly reflecting higher equity income contribution from FPCC.

Impact & implications

The investment implication is that earnings forecasts for APAC refining stocks still have room for upward revision, especially for refiners that are sensitive to GRM and still trade below replacement cost. The report prefers SK Inno, TOP, and Petrochina, while also believing FPCC, S-Oil, ENEOS, Ampol, and Reliance benefit from the strong refining cycle. At the macro level, high refining margins and low inventories are more likely to show up as upward pressure on oil product prices, LNG, and middle distillate prices, rather than immediately causing widespread fuel shortages.

Risks

• If the actual impact of Middle East conflict or Houthi attacks is lower than expected, the supply risk premium may fall back.
• If GRM returns to the historical average of $7/bbl, EPS for companies sensitive to refining margins such as S-Oil and TOP could be cut meaningfully.
• Rising logistics, insurance, and VLCC freight costs could erode refinery profits.
• Government price controls, export bans, windfall taxes, or uncertainty around compensation could alter earnings distribution across refiners in different countries.
• A sharp decline in oil prices could cause inventory losses.
• If new refinery projects, shutdown timing, or recovery from unplanned maintenance come faster than expected, the persistence of high GRM could weaken.

What to watch

• Whether facilities related to Saudi Aramco’s Jizan and Yanbu refineries experience sustained capacity disruptions.
• Middle East seaborne oil product export volumes, especially whether Saudi exports decline further from about 1.4mbd.
• Trends in Asian diesel, gasoline, naphtha, and jet fuel crack spreads.
• The progress of European natural gas inventory restocking and the transmission from LNG prices to middle distillate demand.
• Changes in oil product price controls, export restrictions, and compensation policies in China, South Korea, Thailand, and Taiwan.
• The pace of global refining capacity additions, refinery closures, and recovery from unplanned maintenance in 2026-2030.
• The extent of 2026-2028 consensus EPS upgrades for FPCC, S-Oil, TOP, and SKI.