Middle East's Mega Refineries Up Diesel Output Just As Demand Fades
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Middle East’s Mega Refineries Up Diesel Output Just As Demand Fades

Middle East’s Mega Refineries Up Diesel Output Just As Demand Fades

The IEA forecast that the Middle East’s net oil product exports will reach nearly one million barrels per day in 2015.

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A rapid rise in Middle East refining capacity will create a large glut of diesel as global demand growth for the road fuel weakens, the International Energy Agency said on Tuesday.

In its monthly report, the IEA forecast that the Middle East’s net oil product exports will reach nearly one million barrels per day (bpd) in 2015 from an average of less than 400,000 bpd in 2013.

Newly built Middle Eastern mega refineries are coming into production just as demand growth for their core product – diesel – is beginning to fade, which could leave them searching for outlets, the IEA said.

“The configuration of the plants, designed to maximise diesel production, seems somewhat at odds with market trends that in recent months have shown stronger demand growth for gasoline and jet fuel than for middle distillates,” the agency said in its Oil Market Report.

The IEA expects ultra low-sulphur diesel and jet fuel production from two newly built Saudi refineries and one in the UAE alone to reach 800,000 bpd, against regional distillate demand growth of less than 100,000 bpd per year in 2014 and 2015.

“The current economic and oildemand picture is quite different from what was envisaged at the time when they got underway in the mid2000s,” the report said.

“Since the financial crisis of 2008-09, the economic slowdown has had a more marked impact on distillate demand than on that for other products, such as gasoline.”

The 400,000 bpd Jubail refinery, a joint venture between Saudi Aramco and France’s Total, reached full production in August and the 400,000 bpd Yanbu refinery, run with China’s Sinopec, is set to start in early 2015. The 420,000 bpd Ruwais refinery in the UAE is targeting an end-of-year startup.

But sputtering growth in key growing markets, such as India, Brazil and other Latin American countries, is limiting outlets for diesel, while subsidy cuts in those countries also threatens consumption.

After India phased in gradual subsidy cuts, demand reversed annual growth that had characterized its distillates markets from the 1970s, and demand shrank from June 2013 until April 2014.

Even Europe, which is net short of ultra low-sulphur diesel now, and set to become more reliant on imports as regional refineries shut down and cut production, is not the boom market that the refineries hoped for when they were commissioned.


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