Record flows of Russian diesel to Mideast boost exports to Europe, Africa

Record volumes of Russian diesel poured into the Middle East in March, shiptracking data showed, as traders cashed in on low prices to stock up the fuel at the Fujairah hub of the United Arab Emirates and in Saudi Arabia, which is boosting exports.

The Middle East is quickly becoming a key supplier of the industrial fuel to Europe and Africa, while adding stocks to Asia, as Russian oil adds to rising output from Saudi and Kuwaiti refineries.

That effectively elbows Asian diesel exporters out of those markets, further weighing on prices and refiners' margins in the East, which are already hovering at their lowest in more than a year.

At least 500,000 tonnes of the fuel have been discharged at Fujairah and Saudi Arabia in March, shiptracking data from Refinitiv, Kpler and Vortexa showed, compared with almost no Russian arrivals a year earlier.

The Middle East took up slightly over 10% of Russia's exports loading in February and March.

The European Union banned imports of Russian crude and oil products in December and February, respectively, forcing shipments to go elsewhere.

Curbs on access to Western insurance and ships have made it difficult to sell Russian oil, with traders opting to store the oil at hubs such as Fujairah before re-exporting it.

Saudi Arabia

Top oil exporter Saudi Arabia imported 261,000 tonnes of Russian diesel in March and early April, the largest volume it has ever received from Russia.

One of the cargoes went to Ras Tanura, while three were discharged at Jeddah, Refinitiv and Vortexa data showed.

March-loading Russian diesel cargoes traded at $60 to $70 per barrel on a free-on-board basis, equivalent to a discount of about $20 per barrel to the Middle East benchmark, two traders said.

That is below the price cap of $100 a barrel set by the G7 grouping, which allows traders access to Western ships and insurance services.

"The discounts would need to be large, given freight rates plus (high) risk premium, to ensure the costs are still less than the alternative marginal barrel," said Mark Williams, research director at Wood Mackenzie.

Exports

The Middle East's monthly diesel exports to northwest Europe averaged above 1 million tonnes for the first quarter of 2023, up from 785,000 tonnes a month in 2022's final quarter, data from Refinitiv showed.

March-loading exports to Africa hit a four-month high of 2.57 million tonnes, up from a monthly average of about 1.3 million in 2022, Refinitiv data showed, while volumes to Asia were at a new high for March.

"Middle Eastern exports to Asia rose to 150,000 barrels a day in March, filling some of the void left by slower Chinese exports," Energy Aspects analysts said in a note.

Saudi Arabia ramped up diesel exports from Yanbu and Rabigh, where state giant Saudi Aramco operates joint venture refineries with Exxon Mobil Corp, Sinopec, TotalEnergies, and Sumitomo Chemical, to Europe, the data showed.

Aramco did not immediately respond to an email query from Reuters.

More exports could come from Saudi Aramco's Jizan and Kuwait's Al Zour refineries will boost output this year, in addition to Oman's Duqm project, which is starting up in the third quarter.

Rising supplies could weigh on global refining margins, which could hit $6.60 a barrel in the fourth quarter, down from an average of $11 in the corresponding 2022 quarter, Wood Mackenzie analysts told clients in a note.