Saudi Diesel Exports to Rise

The Middle East’s exportable surplus of diesel will grow by 90,000 b/d in the second half of 2018 to reach 490,000 b/d, with Europe absorbing most of the increase. New refining capacity in Saudi Arabia and Kuwait will boost the region’s surplus further in the first half of 2019, but stagnating import needs in Europe in that period could lead to an oversupply, putting pressure on diesel spreads to crude.

Russian Refining Expansion Moves Ahead

The strength of Russian crude demand and improving notional refining margins contrast with reports of weak Russian refining margins. Despite the tax maneuver and other setbacks to refineries, annual crude demand will bounce back from its recent low of 5.6 million b/d in 2016 to 5.75 million b/d in 2018. Coupled with secondary unit investment, higher throughput assures growing gasoline and diesel exports.

Bearish Refining Margin Pressure Temporary

Plentiful crude, big increases in distillation capacity and decelerating petroleum product demand growth will pressure petroleum product spreads in 2018 and early 2019. The bearish pressure will not last long though. In the second half of 2019, there will be a diesel-driven recovery of refining margins as the market anticipates a spike in demand for gasoil and low sulfur fuel oil.