Middle East diesel exports to Europe seen rising in March as refinery output climbs

Middle East diesel exports to Europe are expected to push higher in March after rebounding in February, with Saudi Arabia and Kuwait leading the way, as the production from Middle East refineries is seen rising, according to analysts and latest ship-tracking data.

Diesel shipments from the Middle East to Europe averaged 374,000 b/d in February, the highest in two months, and up from 318,000 b/d in January, S&P Global Commodities at Sea data showed.

Kuwait's shipments more than doubled to an average 114,000 b/d from 55,000 b/d over the same period, CAS data showed. Saudi Arabia was the largest diesel exporter in February at 192,000 b/d, up from 169,000 b/d in January.

February marked the first time since August 2023 that Egypt shipped diesel to Europe, the data showed. So far in March, Oman's diesel exports to Europe are already double the pace in February.

"Europe is now relying on the Middle East and the US for diesel, while Russian barrels have been heading to Africa and Latin America," said Naing Oo, senior adviser, global oil analytics, S&P Global Commodity Insights. "A big question now is whether recent drone strikes on several Russian refineries will curb Russian diesel exports, encouraging Africa/Latin America to take diesel cargo from the Middle East and the US, potentially reducing supplies to Europe."

EU ban on Russian oil products

Shipments from the Middle East have been expected to surge after the EU's ban on Russian oil products since Feb. 5, 2023.

Clean product exports averaged 185,000 b/d in February, the highest since April 2023, according to CAS data. Gasoline and blendstock exports to France averaged 25,000 b/d in February, the most since July 2021, while jet fuel and kerosene headed for the Netherlands averaged 166,000 b/d in February, the most since at least 2016.

"Every one of us has been really surprised at gasoline's strength in Europe," Oo said, noting that Europe is typically a net exporter of gasoline.

Traders may be taking the opportunity to move more gasoline from the Middle East into Europe ahead of the turnaround season and spring/summer driving, Oo said, adding that growing gasoline-powered car sales in Europe are also supporting gasoline demand at the expense of diesel.

"Right now, the Europe gasoline surplus is heading to Africa, with Nigeria the largest importer," Oo said, but noted that is not expected to last as increased production from Nigeria's new 650,000 b/d Dangote refinery will mean reduced import demand in Nigeria and more supplies in Europe. "European gasoline exporters will have to find alternative destinations or reduce runs or a combination of both."

Middle East refinery production is expected to climb to 9.056 million b/d in the first quarter of 2024 from 8.88 million b/d in the last three months of 2023 as refinery maintenance slows and regional demand declines, analysts with S&P Global said in a Feb. 29 report. It is the first time that Middle East refineries will consume more than 9 million b/d of crude oil in Q1 even as more than 1 million b/d of refinery capacity was offline in February for planned maintenance, according to the report. The planned maintenance is expected to be mostly over in March, it said.

The estimated gasoil/diesel production forecast for Q1 was raised by about 60,000 b/d from January to 2.827 million b/d as hydrocracking margins rose and gasoil/diesel crack spreads widened more than expected in February, according to the report. The hydrocracking margin for Middle East refineries will average $8.46/b in Q1, up from $7.73/b estimated in January, it said.

At the same time, Europe is heading into refinery maintenance season as demand typically picks up in April from the agriculture sector. Diesel and gasoil stocks in the Amsterdam-Rotterdam-Antwerp refining hub fell 1.26% to 2.032 million mt in the seven days to March 7, according to Insights Global data.

Saudi Arabia, Kuwait and Oman diesel shipments to Europe are averaging 169,000 b/d in March, according to CAS data.

Oman's OQ8 refinery in Duqm with production capacity of 230,000 b/d was inaugurated in January after six years of development, while Kuwait's Al-Zour refinery hit maximum capacity of 615,000 b/d in February after commercial operations began in November 2022, S&P Global reported earlier.