Middle East diesel exports hit record

The commissioning of new refineries and upgrades to existing refineries propelled diesel exports from the Middle East to record highs of over 1.8mbd in June, with preliminary exports in the first half of July reaching nearly 2mbd. A redirection of crude flows towards the newly opened refineries such as Oman’s Duqm and Kuwait’s Al-Zour has resulted in crude and condensate exports from the region (excluding Iran) slowing to 14.4mbd in June this year, reaching a 4-year low.

 Middle East diesel exports (excl Iran) by origin country (LHS, mbd) and Middle East crude/condensate exports (excl Iran) (RHS, mbd)

Kuwait and Oman increased diesel exports on completion of refineries

During the second quarter, Kuwait’s diesel exports from the Al-Zour refinery and Mina Abdullah Sea Island Terminal grew 18% and 32% quarter-on-quarter (q-o-q) respectively, offsetting slight declines from other terminals. Oman diesel exports have been increasing steadily since the inauguration of Duqm refinery and grew by 11% q-o-q in the second quarter, highlighting the success of the refinery reaching its nameplate capacity. The refinery loaded diesel onto SONANGOL CABINDA this week, the first LR3 cargo it exported. Interestingly, the vessel has been carrying crude over the past year and recently switched from dirty to clean service driven by more favourable tanker rates. Diesel exports could continue to increase when the Duqm refinery output increases, as the refinery aims to increase its capacity by 10% above its nameplate capacity after starting up its coking and hydrocracker units (Argus Media). The refinery has also recently achieved the ability to produce European-grade winter-specification diesel, allowing it to export its cargoes to Europe throughout the year. (Argus Media)

Saudi Arabia fills European diesel shortage amid falling Turkish supplies

In June, European diesel imports from Saudi Arabia’s Red Sea ports - Yanbu and Jizan - surged by close to 50% m-o-m backfilling lower diesel flows from Turkey, which fell by more than 50% since its peak of over 220kbd earlier in March, and offset slight declines of European diesel imports from Saudi Arabia’s Persian Gulf ports. Diesel exports from the western area of Saudi Arabia were able to take advantage of shorter voyages to Europe via the Suez Canal than vessels travelling via the Cape of Good Hope. Concurrently, diesel flows through the Bab-el-Mandeb waypoint have fallen under 200kbd compared to 2023’s average of 950kbd.

 European diesel imports from Saudi Arabia’s Red Sea ports (kbd) and imports from Turkey (kbd)

LR - VLCC freight price gap drove dirty-to-clean switches

The sharp increase in diesel exports to Europe and Africa has bolstered Middle East Gulf to UK-cont clean tanker freight rates in recent weeks. Meanwhile, global VLCC dirty freight rates remained soft, prompting major trading houses to initiate dirty-to-clean switches on larger tankers to capitalise on the more favourable clean tanker rates. There have been three VLCC diesel loadings from the Middle East since mid-June as of 16th July after nine months of absence, reflecting how lucrative the trade is, despite having to incur the cost of cleaning the tanker. As clean tanker tonnage supply increases, LR tanker rates could potentially weaken.