Oil demand in the 10 top-consuming Middle Eastern countries (ex-bunkering) reverted to declines in December 2018, dropping y/y by 0.16 mb/d to total 5.90 mb/d. The reduction was led by Saudi Arabia, where demand declines accelerated to 0.26 mb/d y/y, led by gasoline (-0.14 mb/d y/y). Saudi diesel (-66 thousand b/d y/y) and jet demand (-57 thousand b/d y/y) also dropped, with the former sinking to an eight-year low of 0.46 mb/d. Fuel oil demand fell by 68 thousand b/d y/y, with the Kingdom preferring to burn crude in power generation (+0.10 mb/d). December capped off a weak year for Saudi oil demand, with 2018 demand falling by 0.17 mb/d (7%), led by diesel (-0.11 mb/d), on weak construction activity. Weakness has continued into 2019, with local cement sales 13% lower y/y in January. For 2019, we expect another reduction in Saudi diesel demand due to construction project cancellations, and for overall Saudi demand to be broadly flat y/y. Iraqi demand continued to grow strongly in December, rising by 0.10 mb/d y/y, with gains across most of the barrel, led by fuel oil (+28 thousand b/d y/y) and diesel (+26 thousand b/d y/y). Kuwaiti demand fell for the fifth consecutive month, by 41 thousand b/d y/y.
Middle Eastern refinery runs fell by 87 thousand b/d m/m to 7.93 mb/d in December 2018, but they were 0.21 mb/d higher y/y. With the exception of Saudi Arabia (-0.14 mb/d), runs grew y/y in all the region’s main refining centres, led by Iraq (+0.12 mb/d). Across Q1 19, we forecast runs at 7.8 mb/d, higher y/y by 0.3 mb/d, with planned CDU works currently expected to be 0.3 mb/d lower y/y at 0.3 mb/d. Saudi December diesel exports remained elevated at 0.85 mb/d in December (+0.14 mb/d y/y), and are likely to have remained high in January and February, though they could ease in March with the Yanbu refinery down for works across the month.