Oil demand in the 10 top-consuming Middle Eastern countries (ex-bunkering) grew for a second consecutive month in February, rising y/y by 0.28 mb/d to 6.06 mb/d. The increase was led by Saudi Arabia, where demand rose by 0.22 mb/d y/y. Most of the growth originated in power generation, with fuel oil demand rising by 0.24 mb/d y/y, supported by a drop in crude burn (-84 thousand b/d y/y). Fuel oil demand is expected to continue rising as we come into summer due to increased use of air conditioning. Kuwaiti oil demand fell for the seventh straight month (-65 thousand b/d). Iraqi oil demand increased by 86 thousand b/d in February, although fuel oil declined by 53 thousand b/d y/y. Mass flooding in Iraq and Iran from late-March, which caused a state of emergency to be declared as well as record-high reservoir and dam water levels, are likely to reduce fuel oil demand. Cargo-tracking by Kpler is showing a sharp rise in Iraqi fuel oil exports, soaring to as much as 1.8 Mt in April from the 0.7-0.8 Mt seen between November 2018 and February 2019. Along with the flood-related reduction in demand, the smuggling of Iranian fuel oil to avoid US sanctions may explain some of the increase.
Middle Eastern refinery runs fell by 55 thousand m/m to 7.90 mb/d in February but were higher y/y by a strong 0.54 mb/d. Saudi Arabia and Kuwait led the y/y growth, rising by 0.29 mb/d and 0.11 mb/d respectively. Across Q1 19 we forecast runs at 7.86 mb/d (+0.43 mb/d y/y), with planned CDU works 0.3 mb/d lower y/y. Saudi February diesel exports dipped by 0.12 mb/d m/m to 0.67 mb/d, lower y/y by 84 thousand b/d, though they were 0.19 mb/d above the five-year average. Diesel exports likely eased further in March with the Yanbu refinery down for works. The Kingdom remained a net fuel exporter for the fourth straight month in February.