There was a considerable surge in the amount of Russian Diesel poured into the Middle East during March. This was mainly due to traders taking advantage of the low prices to replenish their fuel stocks at the Fujairah hub of the United Arab Emirates and Saudi Arabia. As a result, the Middle East is turning into a significant supplier of this industrial fuel to Europe and Africa, while also increasing its supply to Asia. This move has resulted in decreased competitiveness of Asian Diesel exporters in these markets, which has led to further price drops, affecting the margins of refiners in the East. At present, these margins are hovering at their lowest level in over a year.

According to recent reports, approximately 500,000 tonnes of fuel were discharged in Fujairah and Saudi Arabia in March alone. This shows a significant increase compared to the same time last year when there were hardly any Russian arrivals in these regions. Notably, the Middle East accounted for just over 10% of Russia's exports loadings in February and March of this year. These heightened figures come after the European Union prohibited the imports of Russian crude and oil products in December and February consecutively, which resulted in a shift in shipments to alternative destinations.

The Russian oil industry is facing hurdles in selling its products due to limitations on accessing Western insurance and ships. As a result, traders are resorting to storing their oil at centralized hubs like Fujairah before exporting it again. Meanwhile, Saudi Arabia, the leading exporter of oil, reportedly imported a record volume of 261,000 tonnes of Russian Diesel between March and early April this year. Among the four cargoes, one was delivered to Ras Tanura, while three others were discharged at Jeddah.

Russian Diesel cargoes for March loading were traded at a price range of $60 to $70 per barrel on a free-on-board basis. This translates to a discount of approximately $20 per barrel in comparison to the Middle East benchmark. Despite being lower than the G7's regulated price cap of $100 per barrel, traders are still permitted access to Western ships and insurance services. The Middle East witnessed a significant increase in monthly Diesel exports to northwest Europe during the first quarter of 2023, with volumes averaging over 1 million tonnes. This is a notable increase from 785,000 tonnes per month in the final quarter of 2022.

Exports in March surged to a four-month high of 2.57 million tonnes in Africa, doubling the monthly average of 1.3 million seen in 2022. Simultaneously, Asian volumes also hit a new high for March.

In the meantime, Middle Eastern exports to Asia recorded 150,000 barrels a day in March, thus compensating for slower Chinese exports. Moreover, Saudi Arabia increased its Diesel exports to Europe from Yanbu and Rabigh, where the state-owned Saudi Aramco operates joint venture refineries with Exxon Mobil Corp, Sinopec, TotalEnergies, and Sumitomo Chemical.

Saudi Aramco's Jizan and Kuwait's Al Zour refineries are expected to increase their output this year, along with Oman's Duqm project, which is set to commence operations in the third quarter. As a result of the rising supplies, it is anticipated that global refining margins may be affected, which could potentially decline to $6.60 per barrel in the fourth quarter, compared to $11 on average during the corresponding quarter of 2022.