Saudi Arabia, the world’s top crude oil exporter, has turned itself into a major refined-fuels power, offering customers millions of barrels of diesel and potentially triggering a price war with Asian competitors as its exports feed into a glut.
Saudi Arabia, a leading member in the Organization of Petroleum Exporting Countries, had pledged last November to keep crude output high to defend its market share against higher-cost producers.
While the strategy has kept crude markets well-supplied and prices low, the kingdom has had mixed success in defending its market share as global production remains high despite low prices.
Saudi Arabia’s massive refineries are now processing more of its crude at home, moving the country into a tie with Royal Dutch Shell as the world’s fourth-largest refiner and enabling it to export more fuel products than ever before.
Aramco Trading Co, a subsidiary of state oil company Saudi Aramco [SDABO.UL], offered via tenders 2.8 million barrels of ultra low sulfur diesel for loading in late July to early August, trade sources said, enough to meet Japanese demand for three and a half days.
The unusually large volume of offers is likely to add to exports that last year surged to peaks of more than 300,000 barrels per day (bpd), up from next to nothing in 2010, according to data from the Joint Oil Data Initiative.
“We are already seeing the impact in the Asia-Pacific,” said Suresh Sivanandam, principal analyst for refining and chemicals at Wood Mackenzie.
“This year there is not a single drop of diesel exported from Singapore to the Middle East,” he added, referring to a once popular diesel export route.
The Saudi exports, mainly ultra low sulfur diesel destined for Europe, put it in direct competition with big Asian diesel exporters India and South Korea and reduces Asia’s gasoil margin to the lowest in five years.
A flurry of shipping activity out of the Red Sea port of Yanbu has also pushed up freight rates for long-range tankers by nearly 20 per cent since last week, a shipbroker said.
Saudi Arabia opened its newest 400,000-barrel per day refinery in Yanbu in April, reaching full capacity within two months.
“Yanbu has become a distillates monster,” a shipbroker said, referring to increased exports from the city.
At least seven long-range vessels have been provisionally booked to load diesel from Yanbu headed for Europe, shipping fixtures showed.
One of them is the 120,000-tonne Suezmax tanker Atina, carrying diesel to Europe, an unusually big ship to transport the fuel that showcases the scale of the new Saudi operations.
Exports from the Gulf are expected to rise further as demand in the area falls at the end of summer when power generation drops.
