Oil refining margin on the rise!

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FOLLOWING the recent attacks on three Russian refineries by Ukraine last week, crude oil prices surged amid concerns of a potential shortage of petroleum products in Europe. The European market is already strained, particularly in terms of diesel and jet kerosene, as many refineries have shut down over the years.

Since 1993, Q8 – the retail arm of Kuwait Petroleum Corporation (KPC) – shut down approximately three refineries across Europe. This move mirrored the actions taken by other international oil companies such as Esso, BP, Shell, and ENI. This closure was in response to Europe’s surplus of refineries, occurring at a time when national oil companies have been constructing their facilities, including Aramco, KPC, Adnoc, Iraq, and Iran. The current situation escalated further with the boycott of Russian products and the recent attacks on Russian refineries.

This has intensified the urgency for Arabian Gulf products, presenting a favorable opportunity for Kuwait’s new Al-Zour refinery, which recently began operations. Alongside Aramco’s refineries, Kuwait’s refinery could help alleviate supply shortages in the region. This development can certainly be considered as good news for refineries and their profitability. Their margins, which have typically been around $16 per barrel above net crude oil prices over the past decade, are now expected to increase to approximately $35 per barrel. This marks a significant improvement and promises positive returns for refiners. In light of this, Kuwait has doubled its diesel exports to Europe from 55,000 barrels per day in February to 114,000 barrels per day.

Similarly, Saudi Arabia also saw an increase in exports from 160,000 barrels in January to 192,000 barrels per day. Overall, refining products from the Middle East are expected to surpass nine million barrels in the first quarter of this year, compared to 8.5 million barrels in 2023. Investments in refining are starting to pay off, and it is time for Kuwait to capitalize on this by maximizing the production of petroleum products. With Europe facing a prolonged absence of Russian products, there is an opportunity for Kuwait to consider expanding its refining capacity and operations. Some European oil companies, like BP and Shell, may now regret reducing their capacity and investments in the refining sector. The current profit margins exceeding $30 per barrel for refining companies are indeed lucrative. As an oil-producing country, we must capitalize on these margins and strive to maximize our returns in refining operations.

By Kamel Al-Harami
Independent Oil Analyst
email: [email protected]

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