Asia oil markets eye Kuwait Al Zour's exports as final CDU starts up

Oil markets in Asia are bracing for further growth in exports from Kuwait's newest Al Zour refinery as the complex started up its third and final crude distillation unit (CDU) this week, with trade sources saying the full impact was likely to be felt later in the third quarter as it ramps up operation, said Hydrocarbonprocessing.

The refinery, which first started commercial operations in November 2022, is one of several major facilities globally bringing capacity online this year, with higher production and exports of oil products expected to weigh on refining margins.

With Al Zour operational, Kuwait's exports of refined products, including fuel oil, diesel, jet fuel and naphtha, hit a monthly record high of 2.8 million metric tons in June, data from analytics firm Kpler showed. Al Zour has been stepping up its fuel oil tenders since end-2022, with a significant share of its products landing in Asia and the Middle East and putting margin pressure on rival refiners.

Most of the very-low sulfur fuel oil (VLSFO) exports were headed to key bunker and transfer hubs Singapore and UAE's Fujairah, based on Refinitiv and Kpler ship tracking data. For jet fuel, Al Zour's exports have averaged 50,000 tons to 200,000 tons per month since the start up of the first CDU at the end of 2022, with cargoes mostly headed to northwest Europe, the ship tracking data showed.

However, these are likely contract cargoes, two refinery sources with knowledge of the matter said, meaning they are unlikely to have put pressure on spot markets. Meanwhile, gasoil exports were mostly headed to Europe or Africa, the data showed, also easing Asian market impact. Still, market participants in Asia and industry watchers are keeping watch on whether Al Zour sustains or raises export volumes to Asia in the nearer term.

We remind, Kuwait Integrated Petroleum Industries Company’S (KIPIC) distillation unit 21 at the al-Zour refinery has come online, paving the way for the refinery to operate at full capacity. Kuwait's oil minister said that his country hopes to have a higher oil production quota when it ramps up capacity, and that Kuwait remains committed to OPEC decisions.

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U.S. crude stocks drew more than expected on strong refining demand, while gasoline inventories posted a large draw after an increase in driving last week, as per Hydrocarbonprocessing.

Crude inventories fell by 1.5 million barrels in the last week to 452.2 million barrels, compared with analysts' expectations in a Reuters poll for a drop of 1 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 400,000 barrels in the week ended June 30, EIA said.

"Refining run rate is high enough to put pressure on inventories," said John Kilduff, partner at Again Capital LLC in New York. "Gasoline demand was extraordinary, and reflective of the July 4th holiday travel." Refinery crude runs fell by 224,000 barrels per day in the last week, EIA said. Refinery utilization rates fell by 1.1 percentage points in the week to 91.1%.

U.S. gasoline stocks fell by 2.5 million barrels in the week to 219.5 million barrels, the EIA said, compared with analysts' expectations in a Reuters poll for a drop of 1.4 million barrels. Distillate stockpiles, which include diesel and heating oil, fell by 1 million barrels in the week to 113.4 million barrels, versus expectations for a rise of 300,000 barrels, the EIA data showed.

Net U.S. crude imports rose by 1.9 million barrels per day, EIA said. Oil prices, however, shrugged off the bullish EIA report and traded lower on fears of a U.S. interest rate hike. Brent crude futures were down USD1.34, or 1.6%, at USD75.31 at 1123 a.m. ET (1523 GMT), while U.S. crude futures were down USD1.16, or 1.7%, at USD70.61.

We remind, Russia's seaborne diesel and gasoil exports in June rose by 13% from a month earlier to about 3.6 million tons as seasonal refineries maintenance eased, data from traders and Refinitiv Eikon showed. Idle primary oil refining capacity for June was estimated at 4.029 million tons, down from May, and may fall to 1.683 million tons in July, Refinitiv data and Reuters calculations showed. In August, Russia will also cut its oil exports by 500,000 barrels per day (bpd), potentially yielding more supply for domestic refining and fuel production.

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Iran's Revolutionary Guards seized a tanker holding 900 metric tons of "smuggled fuel" and 12 crew members based on a court order, said Hydrocarbonprocessing.

"A vessel carrying 900 tons of smuggled fuel with 12 crew members was seized by the Revolutionary Guards' Navy patrol vessels in the Persian Gulf with a court order," Fars news reported from Iran's southern port of Bandar Abbas. No further detail about the ship has been given.

Iran, which has some of the world's cheapest fuel prices due to heavy subsidies and the plunge in the value of its national currency, has been fighting rampant fuel smuggling by land to neighboring countries and by sea to Gulf Arab states.

British maritime security company Ambrey said on Thursday it was aware of an attempted seizure by Iranian forces of a small Tanzanian flagged tanker, around 59 nautical miles northeast of the Saudi Arabian port city of Dammam.

We remind, Iran's crude exports and oil output have hit new highs in 2023 despite U.S. sanctions, according to consultants, shipping data and a source familiar with the matter, adding to global supply when other producers are limiting output.

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Oil prices climbed about 2% to a six-week high on Friday as supply concerns outweighed fears that further interest rate hikes could slow economic growth and reduce demand for oil, said Hydrocarbonprocessing.

Brent futures rose USD1.41, or 1.8%, to USD77.93 a barrel by 1:39 p.m. EDT (1739 GMT). U.S. West Texas Intermediate (WTI) crude rose USD1.51, or 2.1%, to USD73.31. Both benchmarks were on track for their highest closes since May 24 with both up about 4% for the week.

"The rally over the last week or so ... has been quite strong and backed by momentum - as well as fresh cuts from Saudi Arabia and Russia," said Craig Erlam, a senior market analyst at OANDA. Top oil exporters Saudi Arabia and Russia announced fresh output cuts this week bringing total reductions by OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, to around 5 million barrels per day (bpd), or about 5% of global oil demand.

"OPEC+ production cuts are expected to tighten the market, driving supply deficits in the second half of 2023, supporting higher oil prices," analysts at U.S. financial services company Morningstar said in a note. OPEC will likely maintain an upbeat view on oil demand growth for next year, sources close to OPEC said.

Russia's latest pledge to reduce oil exports will not require a similar cut in production, a government source told Reuters. Oil analytics firm Vortexa said there are currently 10.5 million barrels of Saudi crude in floating storage off the Egyptian Red Sea port of Ain Sukhna, down by almost half from mid-June.

In the U.S., energy firms this week added oil and natural gas rigs for the first time in 10 weeks, due to the biggest weekly increase in gas rigs since October 2016, according to energy services firm Baker Hughes Co. In Norway, Equinor ASA paused production at its Oseberg East oil field in the North Sea due to staffing shortages.

In Mexico, six people were injured after a fire broke out on Friday morning at an offshore platform run by state oil company Pemex in the Gulf of Mexico. Also supporting crude prices, the U.S. dollar, fell to a two-week low on Friday after data showed U.S. job growth was lower than expected but still strong enough to likely lead the U.S. Federal Reserve (Fed) to resume raising interest rates later this month as it has signaled.

A weaker dollar makes crude cheaper for holders of other currencies, which could boost oil demand. "A softer jobs report than widely expected has taken some of the steam out of recent market moves, but the labor market remains too tight ... A July rate hike is coming" from the U.S. Federal Reserve, James Knightley, chief international economist at ING, a bank, said in a note.

According to the CME Group Inc's FedWatch Tool, the probability that the Fed increases interest rates by 25 basis points at its July 25-26 meeting is now around 95%, up from 92% just prior to the data coming out. Higher borrowing costs could slow economic growth and reduce oil demand.

In Europe, decades-high inflation and the impact of war in Ukraine has forced companies to impose hiring freezes and lay-offs. In Germany, a swift economic recovery appeared less likely as data showed a surprise fall in industrial production.

We remind, Russia's seaborne diesel and gasoil exports in June rose by 13% from a month earlier to about 3.6 million tons as seasonal refineries maintenance eased, data from traders and Refinitiv Eikon showed. Idle primary oil refining capacity for June was estimated at 4.029 million tons, down from May, and may fall to 1.683 million tons in July, Refinitiv data and Reuters calculations showed. In August, Russia will also cut its oil exports by 500,000 barrels per day (bpd), potentially yielding more supply for domestic refining and fuel production.
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MRC) -- ORLEN is steadfastly executing the largest petrochemical project in Europe in the last 20 years. The company has decided to scale up the expansion of the Olefins Complex at the Production Plant in Plock, said the company.

This move is in response to the growing market demand for petrochemical products, which serve as the foundation for manufacturing everyday items, such as car parts and home appliances. The expansion of the Olefins Complex will result in approximately 650 new jobs.

Importantly, the project will enable a 30% reduction in CO2 emissions per tonne of product and will position ORLEN as a leader in the European petrochemical industry. ORLEN plans to invest Zloty 25 bn in the expansion of the Olefins Complex, with Polish subcontractors also taking part in the project. This amount is almost on par with the profit earned by the ORLEN Group in 2022.

We remind, ORLEN Group's PGNiG Upstream Norway has bought interests in two fields on the Norwegian Continental Shelf, said the company. The deal is consistent with the Group's strategic goal of raising its own gas production volumes to improve Poland's energy independence and security. Under an agreement with Sval Energi AS, PGNiG Upstream Norway has purchased a 10% interest in licence PL211 CS, covering the Sabina and Adriana fields.

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