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The market for sour crude in Asia is tightening as Kuwait is ramping up a large new refinery and cutting exports to divert supply to its new facility, adding to the ongoing cuts from major Middle Eastern producers in the OPEC+ group to further restrict heavy and medium sour crude supply.
Kuwait is currently in the process of ramping up its huge new 615,000-barrels-per-day refinery Al-Zour and has reduced crude supply to the global market this year, analysts from energy consultancies Energy Aspects, Rystad Energy, FGE, and S&P Global Commodity Insights have told Reuters.
Kuwaiti crude oil exports declined by around 10% annually to average 1.61 million barrels per day (bpd) in the first seven months of the year, per Kpler data cited by Reuters.
As the Al-Zour refinery ramps up through the rest of the year, Kuwait’s crude supply could shrink by 18% in the second half of 2023 compared to the first half of the year, the consultancies told Reuters.
With lower sour crude supply from Kuwait, Asian refiners are scrambling to get their hands on additional sour crude volumes. But Saudi Arabia and Iraq, key sour crude producers, are also cutting production, making the sour crude market one of the hottest in the oil complex this year and undermining Asian refiners’ profitability.
“With output cuts hitting the heavy sour crude market hard, Dubai crude is trading at a rare premium to Brent, while the price of Urals crude has breached the G7-led price cap now making all Russian oil exports ineligible for G7 and EU maritime services,” the International Energy Agency (IEA) said in its monthly Oil Market Report last week.
The premium for Brent Crude prices to Dubai crude has evaporated in recent weeks and has swung to a discount as Middle East oil availability has shrunk with OPEC+ and Saudi production cuts. This dramatic shift in the usual trading pattern could change global oil flows and prompt Brent-linked barrels to sell more easily on the Asian markets.
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.