Crude Oil, Refined Products, Jet Fuel

December 30, 2024

COMMODITIES 2025: Middle East oil refineries brace for more supplies as new capacities come online

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HIGHLIGHTS

Middle East crude runs set for record high

Refinery closings may give Middle East the edge

Weak refining margins if no project disruptions

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Middle East oil refineries, flush with new production capacity and some of the most efficient plants in the world, are bracing for increased competition in 2025, with Bahrain's Bapco expansion set to start adding production capacity in the first three months.

The Middle East is already contending with the 615,000 b/d Al Zour refinery in Kuwait, the 230,000 b/d Duqm plant in Oman and Iraq's 140,000 b/d Kerbala plant. Bapco's expansion to production capacity of 380,000 b/d from 267,000 b/d is set for pre-commissioning in the first three months of the new year. Bapco declined to provide an update at this time. Refinery upgrades will help boost Bahrain's economy next year, the IMF said following the Nov. 22 bilateral talks.

The upside to refining margins in 2025 is the possibility of project delays, as illustrated by Nigeria's Dangote refinery and Mexico's Olmeca refinery, said Dong Wang, senior Middle East oil analyst at S&P Global Commodity Insights. "The challenges faced by the Dangote and Olmeca refineries suggest potential upside risks, indicating that these capacity additions may take longer to fully ramp up, which could, in turn, provide support for refining margins," he said.

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Middle East crude oil

Duqm, Siraf

Bapco's expansion is expected to affect the country's refined product exports by the third quarter, when its gasoil/diesel production is seen rising by 20% from a year earlier, according to Palash Jain, Middle East downstream analyst at FGE. Oman's Duqm is also expected to operate some 10% above nameplate capacity by late 2025 and Iran's Siraf refinery is slated to complete commissioning of its 60,000 b/d condensate splitter expansion in the second half of the year, Jain said.

If all goes as planned, refining margins in 2025 are projected to be weaker than in 2024 due to a "loose supply-demand balance," Wang said.

The addition of new refineries in the region is expected to increase total crude runs in the Middle East by 300,000 b/d in 2025, reaching a record average of 9.7 million b/d, he said.

At the same time, Mexico's 340,000 b/d Olmeca refinery is likely to start up in the second quarter of 2025, "with a phased ramp up over a prolonged period," Commodity Insights analysts said in a Dec. 3 report. The 650,000 b/d Dangote refinery in Nigeria has been running at around 50% capacity since the crude unit startup in the first quarter of 2024, and full commercial operation isn't expected until the first half of 2025, the analysts said. They noted that Kuwait's 615,000 b/d Al Zour refinery was running at about 75% of capacity due to "limited crude allocations" from its parent, Kuwait Petroleum.

While the UAE remains the region's largest destination for fuel oil exports, the US has climbed in the rankings, reaching among the top four destinations of Middle East fuel oil exports so far this year compared with almost nothing in 2021, according to S&P Global Commodities at Sea data. The UAE is also on track to be the largest destination for other refined products this year, taking over from South Korea last year, the data showed.

Refinery closings from outside the region may require new supplies from the Middle East, FGE's Jain said.

"The marginal barrel will still need to come from East of Suez, next year more so than this year on account of further refinery closures," the FGE analyst said. With China's export tax rebate on refined products set to be reduced next year, that may curb refined supplies from China, he added.

"There is some room for East Asia and Indian refiners to keep a few more barrels in the east, allowing Middle East refiners to increase export to Europe next year," he said. The Middle East is expected to remain a "key supplier" of jet fuel/kerosene to global markets next year, he said.

Editor:

Aastha Agnihotri