The recent full-scale operations of Kuwait’s Al Zour refinery have captured the attention of Asian oil markets, with expectations of a surge in crude exports, as reported by Reuters. The refinery’s third and final crude distillation unit (CDU) has commenced operations, and its full impact is projected to be felt in the third quarter as production ramps up.
Having commenced commercial operations in November 2022, the Al Zour refinery is part of a global trend of major new facilities coming online this year. This increase in production and oil product exports is likely to apply pressure on refining margins.
In June, recent data indicated that Kuwait’s exports of refined products, including fuel oil, diesel, jet fuel, and naphtha, reached a record high. Al Zour has been steadily increasing its fuel oil tenders since the end of 2022, with a significant portion of its products shipped to Asia and the Middle East, impacting the margins of rival refineries.
Notably, a majority of its very-low sulphur fuel oil (VLSFO) exports are directed towards Singapore and Fujairah, which are critical bunker and transfer hubs. Although jet fuel exports from Al Zour have remained consistent, primarily heading to northwest Europe, these exports are likely contractual and have limited impact on spot markets. Gasoil exports primarily go to Europe and Africa, reducing their influence on the Asian market.
While Asian market participants and industry observers closely monitor the potential for increased export volumes from Al Zour to the region, recent developments suggest that new export tenders are not expected until mid-August. The spot market for VLSFO has experienced some downward pressure, with the impact of Al Zour supplies on Asia’s market already factored in. However, sustainable export volumes from Al Zour are required to exert further downward pressure on the market.
The impact on diesel supply is anticipated to be felt in the fourth quarter, coinciding with increased heating demand from Europe. With a production capacity of up to 220,000 barrels per day, equivalent to about 12 million metric tons annually, Al Zour has the potential to become a significant global exporter of VLSFO, with 6 to 7 million tons available for export. Additionally, the refinery can produce approximately 7 million tons of ultra-low sulphur diesel, 4 million tons of jet fuel, and 3 million tons of naphtha for global export. Operated by Kuwait Integrated Petroleum Industries Company, a subsidiary of Kuwait Petroleum Corporation, the Al Zour refinery is poised to play a pivotal role in shaping the dynamics of the Asian oil market.