(The opinions expressed here are those of the author, a

columnist for Reuters.)

*

Saudi refining rises to seasonal all-time high in March

*

While kingdom's crude oil exports decline

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Strong refining profits can offset revenue loss from weak

crude

prices

By Ron Bousso

LONDON, May 27 (Reuters) - Saudi Arabia has been

cranking up oil refining operations to capture strong profit

margins, helping the kingdom offset revenue lost from declining

crude prices and exports.

The world's top oil exporter has in recent years invested

heavily in expanding and modernizing its refining and

petrochemical capacity at home and overseas to meet growing

demand for fuel and plastics while also securing outlets for its

crude oil.

Saudi Arabia has nine local refineries with a combined

capacity of 3.33 million barrels of oil per day (bpd),

accounting for roughly 3% of global demand, which are configured

to process its domestically produced crude oil. It operates

another 4.3 million bpd of refining capacity abroad, including

in China, the United States and Malaysia.

The kingdom's domestic refineries processed 2.94 million bpd

in March, the highest-ever volume for that month and only a

smidgen below the record high of 2.96 million bpd in April 2024,

according to data from the Joint Organizations Data Initiative

(JODI).

The 12% monthly increase in refining crude intake in

March was 23% above the 10-year average for the same period. It

correlates with a 12% month-on-month drop in Saudi crude exports

to 5.75 million bpd in March, according to the data,

highlighting the kingdom's flexibility between directly selling

crude to other refiners and refining it itself.

Saudi refinery rates likely declined by around 200,000 bpd

in April due to planned plant maintenance, but should remain at

elevated levels ahead of peak summer demand season, according to

Keshav Lohiya, CEO and founder of analytics firm Oilytics.

Saudi's refined product exports, which include diesel,

gasoline, jet fuel and fuel oil, rose to a record 1.58 million

bpd in March, before declining to 1.48 million bpd in April and

1.42 million bpd so far in May, according to data from ship

tracking firm Kpler, likely reflecting refinery turnaround.

FLEXIBILITY

This integrated strategy offers Saudi Aramco, the

country's national oil company, an effective way to manage oil

price volatility as refining margins - the profit made by

processing crude oil into transportation fuels and chemicals -

typically rise when feedstock prices decline.

It will likely prove valuable going forward after OPEC+, an

alliance of major producing countries unofficially led by Riyadh

and including Russia, started to rapidly unwind 2.2 million bpd

of output since April.

The move to add a large volume of oil into an already

well-supplied market concerned by the impact of U.S. President

Donald Trump's tariffs on global economic activity put heavy

pressure on oil prices, which dropped to around $65 a barrel

from a high of $82 in mid-January.

Saudi Arabia and its allies will likely deepen the price war

when they meet later this month by further accelerating the

unwinding of their production cuts.

Refining margins have held strong so far this year despite

the growing economic headwinds, benefiting from lower crude

prices and healthy demand for diesel in particular. Benchmark

Singapore refining margins are currently near their highest

since February 2024 of around $8 a barrel, according to LSEG

data.

Regardless of the possible impact of the trade wars, global

fuel demand in the northern hemisphere typically peaks from June

through early September, as motorists drive more over the summer

while more air travel buoys jet fuel demand. This will therefore

likely support refining margins in the coming months.

Saudi Aramco placed 28% of its crude oil production in

domestic refining operations in 2024, up from 26% the previous

year, according to its annual report. It also supplied 53% of

the crude used by its joint venture refineries abroad.

The International Monetary Fund assessed that Saudi Arabia

will need an average Brent oil price of around $90 a barrel in

order to balance its national budget.

While crude prices are likely to remain at current levels or

even lower for most of the year given the surge in supplies and

demand uncertainty, the increased refining operations offer

Riyadh an effective tool to manage oil price volatility and to

better withstand a protracted price war.

** The opinions expressed here are those of the author, a

columnist for Reuters. **

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