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Asian oil markets braced for Kuwait Al Zour’s exports  

Kuwait became a global VLSFO supplier after it brought the new Al Zour refinery online Reuters/Carlos Garcia Rawlins
Kuwait became a global VLSFO supplier after it brought the new Al Zour refinery online

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), with trade sources saying the full impact was likely to be felt later in the third quarter as it ramps up operation.

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 sulphur fuel oil (VLSFO) exports were headed to key bunker and transfer hubs Singapore and the UAE’s Fujairah, based on Refinitiv and Kpler shiptracking data.

For jet fuel, Al Zour’s exports have averaged 50,000 tonnes to 200,000 tonnes per month since the start up of the first CDU at the end of 2022, with cargoes mostly headed to northwest Europe, the shiptracking 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 a close eye on whether Al Zour sustains or raises export volumes to Asia in the nearer term.

“They have not been issuing new (export) tenders recently and we think there’s unlikely to be one until mid-August,” a fuel oil trader in Singapore said.

There has been some downside to the spot market for VLSFO recently, though the impact of Al Zour supplies on Asia’s market has already been priced in, some trade sources said.

“Only when the market sees sustained export volumes will there be downward pressure,” said Emril Jamil, senior analyst for crude and fuel oil at Refinitiv.

Any supply impact on diesel will likely be felt in the fourth quarter when heating demand from Europe starts, one trading analyst and a third refinery source said.

Al Zour is set to be a massive global exporter for VLSFO, producing up to 220,000 barrels per day, equivalent to about 12 million metric tons per year, of which 6 to 7 million tons can be exported.

At full capacity, it can also produce about 7 million tons of ultra-low sulphur diesel, 4 million tons of jet fuel and 3 million tons of naphtha, all of which are expected to be exported globally.

The Al Zour refinery is operated by Kuwait Integrated Petroleum Industries Company, a subsidiary of Kuwait Petroleum Corporation.