For most of this year, the big story in energy has been the price of oil.
But I want you to forget about that for a moment.
There’s another number that may be telling us much more about where the energy market is headed next: the price of diesel.
Diesel prices have soared this year, and according to Goldman Sachs, they could remain unusually high through 2027.
At first, that might be hard to believe. Oil supplies from the Middle East are beginning to improve, and Goldman projects Brent crude to eventually settle around $80 a barrel.
Normally, cheaper oil should mean cheaper fuel. But that’s not necessarily what we’re seeing.
The reason reveals a much bigger problem in the energy market.
Here’s the simplest way to think about it: You can’t put crude oil directly into your car, truck, or tractor. It first has to go through a refinery, which turns crude into gasoline, diesel, jet fuel, and other products we use every day.
Right now, the world doesn’t have enough refining capacity to comfortably meet demand. In fact, Goldman Sachs expects refining capacity outside of China to shrink by roughly 300,000 barrels per day this year.
Meanwhile, around 2 million barrels per day of Middle Eastern refining capacity remains offline. Russian refining has been disrupted too.
U.S. refineries have been working hard to help make up the difference, but they can’t run at full speed forever.
In other words, the world doesn’t just need more oil. It needs the infrastructure to turn that oil into usable fuel, and much of that infrastructure is already being pushed to its limits.
Furthermore, governments can release emergency oil reserves to temporarily ease prices, but they can’t just “release” more refining capacity. Building new refineries takes substantial amounts of money and time.
That’s why Goldman believes the crack spread for diesel and jet fuel − the extra premium on top of the price of crude oil − could remain more than twice its normal level in 2027.
You might be thinking, “I don’t drive a diesel vehicle. Why should I care?”
Because diesel helps keep the entire economy moving.
It powers the trucks that deliver our food, the equipment farmers use to harvest crops, the machinery on construction sites, and countless other parts of the supply chain.
When diesel becomes more expensive, the effects can be far-reaching. Trucking companies have to pay more to deliver goods, farmers have to pay more to harvest crops, and construction companies have to pay more to operate their equipment.
Eventually, those higher costs could reach consumers, sending already-high prices even higher.
A Catalyst That Isn’t Going Away
Diesel is only one half of the story. The emergency reserves being used today will eventually need to be replenished too.
For years, we’ve heard that the world is moving away from fossil fuels and that technology will dramatically reduce our dependence on them. That may be the case eventually, but it isn’t the economy we live in today.
The world still runs on enormous quantities of oil and natural gas, and 2026 has given us a painful reminder of what happens when supply can’t keep up.
That’s especially important for American investors.
The U.S. is producing record amounts of oil, with the Permian Basin alone expected to average a record 6.8 million barrels per day this year.
However, I don’t recommend simply chasing oil prices higher, and I certainly don’t think you need to speculate on oil futures.
Instead, I prefer businesses that can benefit from America’s dominant energy production without taking on all the costs of drilling for oil themselves.
One of my favorite examples is oil royalties.
The concept is surprisingly simple. While oil companies spend the money to drill wells, hire workers, buy equipment, and produce oil, royalty owners don’t have to deal with any of that. They simply receive a portion of the revenue generated from the oil and gas.
Think of it as collecting a toll every time another company pulls valuable resources out of the ground.
That’s what makes royalties such an interesting business model. They aren’t immune to falling oil prices or other risks. But their unique structure allows investors to participate in energy production without taking on many of the burdensome operating costs that traditional oil producers face.
That’s why I believe royalty investments deserve more attention in today’s market.
The Bottom Line
The situation in diesel is an important reminder for investors: Don’t just watch the headline price of oil. Pay attention to what’s happening underneath it.
Even if oil falls back to $80 a barrel, that doesn’t necessarily mean the energy crunch is over. If Goldman Sachs is right, some of the most important effects could continue well into 2027.
For investors, that could mean continued opportunities across the energy sector – particularly among companies and investments that generate cash from all the oil and gas America continues to produce.
That’s an area I’ll be watching closely in the months ahead.