(Bloomberg) -- Oil supplies from the Persian Gulf are set to tighten further as Oman and Bahrain expand refining capacity, consuming more regional crude to produce fuels like diesel for export.
The new Duqm refinery, a joint venture between Oman and Kuwait, has begun exporting the first cargoes of refined products, according to people familiar with the matter. Traders expect the 230,000 barrel-a-day facility to be running at full capacity by the start of next year.
Bahrain is also expanding its Sitra refinery, boosting the 87-year-old crude processing plant’s capacity to about 400,000 barrels a day from 267,000 a day now. The project will modernize units capable of producing jet fuel and diesel that meet European specifications, according to people with knowledge of that plant’s operations. The expansion is set to be complete by the end of 2024, they said.
The operators of both facilities didn’t immediately respond to requests for comments.
Together, the two refineries will further tighten supply of Middle Eastern crude, taking more than 300,000 barrels a day from export flows at a time OPEC+ producers are already restricting their contribution to global markets. The crude that those processing plants will use would have normally been shipped to refiners in Asia. The additional diesel output will likely flow mostly to Europe.
Oil in London has risen more than 20% since June to over $90 a barrel as Saudi Arabia implemented voluntary output cuts in addition to the quotas already in place for the Organization of Petroleum Exporting Countries and allied producers. Margins have stayed high for refiners in Asia as buyers vie for the Middle East barrels which are best suited for their processing plants.
In addition, Kuwait has been bringing its newest refinery, a 615,000 barrel-a-day facility at Al Zour on the Persian Gulf, online this year. That’s contributed to lower crude flows to Asia from the country. The country is also supplying oil to the Duqm refinery.
Bahrain itself doesn’t export crude, with the island nation receiving most of its supply via pipeline from Saudi Arabia.
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