Oil demand in the 10 top-consuming Middle Eastern countries (ex-bunkering) declined for the third straight month in May, falling y/y by 0.44 mb/d to 5.96 mb/d, the steepest decline since October 2016. Saudi demand dropped steeply by 0.42 mb/d y/y, with direct crude for burning (+38 thousand b/d y/y) the only product to register an increase. Fuel oil (-0.29 mb/d) led the declines, but the June heatwave is likely to have supported fuel burn, further supporting HSFO prices. Kpler is showing Middle Eastern fuel oil exports have fallen to 0.86 mb/d in June–July compared to 1.00 mb/d in April–May. Saudi jet fuel demand fell y/y by 8 thousand b/d, with Middle Eastern passenger growth continuing to slow in May, just 0.8% higher y/y. The Middle East is the only region to have reduced passenger capacity over the past 12 months. Saudi diesel (-42 thousand b/d y/y) and gasoline (-46 thousand b/d y/y) continued their declines, although diesel exports were lower y/y by 0.20 mb/d. Iraqi demand fell for the second consecutive month in May, by 18 thousand b/d y/y. Fuel oil (-12 thousand b/d y/y) led the declines, likely impacted by flooding from late March to early April and the continued substitution of natural gas in power generation. Kuwaiti demand rebounded in May, rising by 5 thousand b/d y/y, the first increase since July 2018. Tanker attacks over May and June have pushed insurance and shipping costs higher and are likely to weigh on fuel oil demand as bunkering is diverted away from the Gulf.
Middle Eastern refinery runs fell by 36 thousand b/d m/m to 7.72 mb/d, higher y/y by 7 thousand b/d. Saudi Arabia led the decline, falling by 0.14 mb/d y/y. Across Q3 19, we forecast runs at 8.02 mb/d, higher y/y by 0.11 mb/d, even with planned CDU works currently expected to be 0.11 mb/d higher y/y at 0.35 mb/d and the recent unplanned outage at Satorp’s reformer.