Middle East refiners may cut runs on less crude, high prices

Dubai — Refineries in the Middle East have been raising runs after completing maintenance and as demand picks up, but there are increasing concerns that many will reduce throughput on high crude prices and less crude.

"It's all over the place for refineries, with the OPEC announced cuts we expect to see less coming out from Saudi refineries," a trader said July 14. "We haven't seen more product coming out and margins are still negative so any refinery that can reduce rates and runs will do that."

According to another trader, Saudi refineries will "cut their rates a bit because of crude."

In its recent monthly report, the International Energy Agency also said that, globally, refiners would face challenges from "much tighter feedstock markets ahead" which would likely offset "any benefit from improving demand."

The OPEC+ crude output cuts have resulted in higher prices for heavy sour crudes and as a result more complex refineries are "almost as disadvantaged" as less sophisticated ones "as heavy feedstock discounts and light product premiums are narrower," the IEA said.

Following announcements of higher July crude prices, Bahrain's Sitra, which recently increased runs above 90% on improved economics, may lower them again to about 70-80%, traders said.

Saudi Arabia's Yasref refinery has slowed production due to lower demand and Dubai's Emirates National Oil Co.'s Jebel Ali refinery has reduced runs slightly due to lower demand in the wake of the coronavirus pandemic and expects to maintain reduced rates for the time being, sources said.

"I don't think anyone is raising refinery rates, we haven't noticed that on the physical markets," a trader said.

Furthermore, ongoing weakness in jet demand is also prompting refiners, like Saudi Jubail to reduce runs, according to sources.

"There was a lot of jet overhang and the current state is not enough to have drawn all this stock completely," the trader added.

The supply situation has been exacerbated by most refineries in the Middle East returning after their spring maintenance and ramping up throughput gradually.

The Ruwais refinery restarted in early May, with full utilization expected in the second half of the year. In May, Petro Rabigh was also back while Bahrain's Sitra also came back online in early June. Mina al-Ahmadi also restarted its atmospheric residue desulfurization units toward the end of May.