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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The EU Needs More Diesel, But The Middle East Can’t Supply It All

  • Europe has raised its imports of fuels from the Middle East and the United States.
  • Kuwait, for example, plans to raise its diesel exports to Europe fivefold this year – to around 50,000 bpd.
  • Europe will enter the embargo well stocked, especially after importing a lot of Russian diesel and other products at the end of 2022.
Diesel

Europe has raised its imports of fuels from the Middle East and the United States in preparation for the EU ban on seaborne imports of Russian refined petroleum products. Just ahead of the ban, Europe was still the biggest buyer of Russian diesel and it will have to boost imports from non-Russian suppliers significantly after the embargo kicks in on Sunday. 

Yet, the Middle East – despite adding planned refinery capacity in recent years – may not be able to meet Europe’s demand due to delays in the commissioning of some new refineries.    

The EU is banning—effective February 5—seaborne imports of Russian refined oil products, and it has to replace around 1 million barrels per day (bpd) of Russian fuel imports, including 600,000 bpd-650,000 bpd of diesel. 

Europe has been stocking up on Russian supply ahead of the embargo. 

In December, for example, Russia’s diesel exports surged to a multi-year high of 1.2 million bpd, of which 720,000 bpd was destined for the EU, according to estimates in the latest Oil Market Report by the International Energy Agency (IEA).

After February 5, the diesel markets and the product flows globally are set to change, with Russia looking to place its refined products elsewhere and Europe hauling in more supply from the United States, the Middle East, and Asia, analysts say. 

With delays at some new Middle Eastern refineries, Europe will have to also boost supply from the U.S. and Asia. 

Related: Everybody Loves Oil Again

In the Middle East, the top OPEC producers have ramped up – or pledged to ramp up – their exports of refined products to Europe. 

Kuwait, for example, plans to raise its diesel exports to Europe fivefold this year – to around 50,000 bpd, a source with knowledge of the matter told Bloomberg last month. The Gulf oil producer, one of OPEC’s largest, also expects to double the sales of jet fuel to Europe in 2023 to nearly 5 million tons. 

Kuwait National Petroleum Company also said this week that the Mina Al-Ahmadi refinery had sent its first shipment of diesel – of about 38,000 tons – developed for the European markets, which conforms to international environmental standards and specifications and is suitable for cold weather. 

But Kuwait’s huge new Al-Zour Refinery, which will process 615,000 bpd of crude and can produce around 145,000 bpd of diesel, hasn’t reached full operational capacity yet. The refinery is expected to start up a second unit this month and a third and final line in April, according to Bloomberg.

Saudi Arabia’s Jazan and Oman’s Duqm refineries are also in the stage of ramping up, and analysts expect they could be able to fill in some diesel and other fuel gaps in Europe at the end of 2023 at the earliest. 

“Middle East refining projects are subject to commissioning delays,” Ahmed Mehdi, a commodities analyst with Renaissance Energy Advisors, told Bloomberg. 

“Europe won’t benefit from the additional barrels until late 2023,” Mehdi added. 

U.S. refiners, for their part, see the potential for increasing exports to Europe.  

“We do see an incremental pull into Europe,” Brian Partee, Senior Vice President Global Clean Products Value Chain at Marathon Petroleum, said on the earnings call this week. 

Europe will enter the embargo well stocked, especially after importing a lot of Russian diesel and other products at the end of 2022, analysts say. 

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“Europe will enter the post-Russian diesel world relatively well supplied. A rush for Russian diesel imports in Q3 2022 combined with a warmer European winter and well supplied natural gas has softened the diesel supply shock and panic buying witnessed in October 2022,” Pamela Munger, Senior Market Analyst at Vortexa, said last month. 

ING strategists Warren Patterson and Ewa Manthey commented on the embargo this week, “Despite this imminent disruption to flows, the market appears relatively calm - the gasoil crack has been trending lower since the end of January. A likely reason for this is that the market has had a significant amount of time to prepare for the ban. We have seen strong inflows of middle distillates into Europe ahead of 5 February.” 

Gasoil stocks in the Amsterdam-Rotterdam-Antwerp (ARA) hub have been rising since early December, bringing inventories back to the five-year average and at the highest level since July 2021, ING said.  

“However, we would expect to see tightening once the ban is in place.”

By Tsvetana Paraskova for Oilprice.com

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