Gulf fuel exports lag as crude shipments near prewar levels

Gulf crude shipments have almost returned to where they were before the US-Iran war, but exports of diesel and other refined fuels have not. Refineries damaged in the war are still offline, and the Strait of Hormuz remains a bottleneck. Total Gulf crude exports through the Strait of Hormuz, the Red Sea and the coast off Oman rose 12% to an average of 19 million barrels per day in the week to October 19, according to shipping data firm Kpler cited by AGBI. Refined product shipments, however, were 43% below prewar levels at 3.6 million barrels per day.agbi.com

The gap matters because diesel keeps freight, farming and industry running. The International Energy Agency said in its October Oil Market Report that the gasoil market "will remain tight well into 2027 and is dependent on a recovery of product supply from the Middle East."thedailyupside.com

Damaged refineries, one open route

Iranian and proxy attacks hit Bahrain's Sitra refinery and Kuwait's Mina Al Ahmadi and Mina Abdullah plants earlier in the war. Kpler does not expect them to fully recover until mid-2027, while Saudi Arabia's Jizan refinery, struck by the Houthis in August, is unlikely to restart before early 2027, AGBI reported. Saudi Arabia and the UAE have moved more crude through bypass pipelines to Yanbu and Fujairah. Those lines carry only crude, so Gulf refineries still depend on Hormuz to ship finished fuel.agbi.com

Gulf producers also have reasons to sell crude first. "Getting oil is a one-day job, but getting oil from refining takes longer," said Maleeha Bengali of MB Commodities Capital, according to AGBI. Speaking in New York on October 21, Kuwait's state oil chief Nawaf Saud Al Sabah said his country had idled 600,000 barrels per day of refining capacity because not enough tankers are willing to load. About 6 million barrels per day of Gulf refining capacity remains offline, The Daily Upside reported.thedailyupside.com+1

Shortages into 2027

Global diesel and gasoil supply was 1.7 million barrels per day lower in the third quarter than a year earlier, the IEA said. Diesel exports from Russia and the Middle East together fell by 1.3 million barrels per day in September. Wholesale diesel topped $200 a barrel in Singapore in mid-September and hit all-time highs of about $220 in Europe and the US, CNBC Comcast Corporation ↘ 0.66% reported. The agency expects refining to recover enough to put the diesel market back in surplus in the first quarter of 2027. Even so, stocks lost this year are unlikely to be rebuilt before the second half of 2027, according to The Wall Street Journal News Corp ↘ 0.53%.wsj.com+2

Risk premium persists

Brent crude rose on October 21 and is trading near five-month highs. Norbert Rücker of Julius Baer said shipping costs only partly explain the price and pointed to "a significant risk premium," AGBI noted. ING ↘ 1.85% strategist Warren Patterson said, "To see this risk premium erode, the market may need the comfort of a deal," according to The Daily Upside.thedailyupside.com+1