Dubai August 17 2023: The Middle East is flush with new refining capacity, just as global oil flows are being reshaped by Russia’s war in Ukraine.
Four new refineries — in Saudi Arabia, Kuwait, Iraq and Oman — have recently launched or are aiming to do so by the end of 2023. Abu Dhabi’s giant Ruwais complex is upgrading its facilities, Iraq’s Baiji refinery has been rehabilitated and Kuwait’s six-year-long Clean Fuels Project combined and upgraded the Mina Abdullah and Mina al-Ahmadi refineries into a single 800,000 b/d capacity complex.
The timing is good as global consumption of major refined products, including gasoline, diesel, jet fuel and fuel oil, is expected to reach 69.3 million b/d by 2030, up from 67 million b/d in 2023, according to S&P Global Commodity Insights, while petrochemical demand is also on the rise.
S&P Global Commodity Insights expects the Middle East’s total production of major refined products to increase 5.5% year over year in 2023 to 8.17 million b/d and to reach 8.48 million b/d by 2024.
Traditionally, this output would be mostly intended for customers in Asia, but the region’s proximity to Europe is helping it to capitalize on a market void left by Russian refined products due to the EU’s embargo and the G7’s price cap.
Exports of major refined products from Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, Qatar and Bahrain to Northwest Europe surged almost 240% in the first four months of 2023 compared with the same period in 2022, and shipments to the Far East also rose.
Russian crude export shipments have also changed because of the war and related embargoes. The UAE had been importing large volumes of Russian fuel oil, gasoil, gasoline, naphtha and vacuum gas oil. Russian fuel shipments to the UAE surged soon after Moscow’s invasion of Ukraine, briefly making the Middle Eastern country the biggest buyer of Russian oil shunned by European refiners.
Russian crude exports, and related discounts, have dropped over recent months as the country has sourced more non-G7 shipping capacity to sidestep price caps. The slump is also related to Moscow’s pledge to cut exports by 500,000 b/d in August to help support global oil prices.
Subsequently, Russian fuel exports to the Middle East fell sharply last month. Exports to Saudi Arabia collapsed by 190,000 b/d to just 28,000 b/d, S&P Global Commodity Insights data showed, while flows to the UAE fell to 236,000 b/d from 263,000 b/d in June.
Another seasonal wrinkle is the Middle East’s increasing use of oil for power generation as air conditioning demand hits peak summer levels. This comes at a time when OPEC+ countries are aggressively slashing their crude production.
The seasonal consumption figures could significantly shrink the amount of oil the region will be able to export, but analysts say the seasonal burn is likely to be somewhat smaller, at 868,000 b/d versus 902,000 b/d of crude burned in the same period of 2022, due to an expansion in natural gas availability.
