Saudi Arabia has been playing its cards right. According to ship tracking data, Saudi Arabia, the primary crude oil exporter, is capitalizing on refining profits by importing significant quantities of low-cost Russian diesel. Subsequently, Saudi Arabia is shipping record volumes of diesel to Singapore, where the fuel can fetch higher profit margins. This strategy allowed Saudi Arabia to optimize its refining operations and take advantage of the price differentials between importing and exporting countries.
But why Singapore?
Ealraboting on the reason behind this decision, Vortexa’s head of APAC analysis Serena Huang said,
“Diesel supply in Singapore is relatively tight due to regional refinery maintenance, while Middle East supplies are rising, which may create spot arbitrage opportunities for traders to move the cargoes [to Singapore].”
All of this, however, veers back to Europe and Russia relations. After the European Union imposed a ban on oil product imports in response to Russia’s invasion of Ukraine, the region has had to redirect the volumes, which it previously sold to Europe. This has been its primary market for oil products. This ban prompted Russia to seek alternative destinations for its oil products and explore new markets outside of Europe.
According to traders and analysts, this situation has created an opportunity for Saudi Aramco. The state oil giant significantly increased its imports to Singapore in May. The company has taken advantage of the favorable price differentials and netbacks in the Asian market compared to Europe. This shift is driven by tighter supply in Asia during the maintenance season, leading to increased profits for Saudi Aramco.
Saudi Arabia to import nearly 500,000 tonnes of Russian diesel
According to recent data, Saudi Arabia is set to import around 500,000 tonnes nearly 3.7 million barrels or possibly even more of Russian diesel in May. The majority of these imports are expected to arrive at Ras Tanura, where one of Saudi Aramco’s refineries is located.
Reuters reported that diesel shipments from Saudi Arabia to Singapore are expected to reach 400,000 tonnes. This is quite an unprecedented level. Furthermore, data from Kpler illustrated that Saudi Arabia’s diesel exports reached a record high of approximately 3.7 million tonnes globally in April. This increase in diesel exports is attributed to the Jizan refinery, which is owned by Aramco. The refinery had plans to boost diesel exports once crude runs stabilize.
The cost of chartering a Long Range vessel for the Middle East to Singapore route has recently experienced a significant drop. The current cost stands a little below $25 per tonne. This is considerably lower compared to the price of around $34 per tonne observed over the past two months. It is worth noting that this cost is approximately half of what it would cost for the same ship to travel to Europe. This reduction in chartering costs reflects the changing dynamics of the market and the shifting demand patterns in different regions.
It is worth mentioning that since the beginning of 2023, global diesel supplies have witnessed an increase. China and the Middle East have notably boosted their diesel exports. This has further contributed to the overall supply growth. Additionally, a mild winter in Europe has limited the demand for diesel. This has also impacted prices. This combination of increased exports and reduced demand has led to a reduction in diesel prices on the global market.