Surge in Saudi oil burn adds new demand twist
Saudi Arabia is best known as the world’s largest oil producer and exporter and last month pumped 9.7 million barrels a day, the second highest level in three decades, but the country could soon become one of the world’s top oil consumers.
The emergence of Saudi Arabia as an important consumer sets a critical new trend that could have profound implications for oil prices over the next few years. As the kingdom’s oil demand surges, the exportable surplus narrows, tightening global oil markets.
The country is on course to consume an average of 2.81 million barrels a day of oil this year, making it the world’s sixth-largest oil consumer behind the U.S., China, Japan, India and Russia. On a per capita basis, its oil consumption is sky high. This year, its consumption is set to jump by 5.6 per cent, way above the global average of 1.4 per cent.
Saudi oil demand has risen by 75 per cent in the ten years since 2001 due to strong economic and industrial growth and subsidized prices. The strong surge contrasts with the more modest increase of 39 per cent in the 1990-2000 period.
Contributing most to the strong growth over the last decade is the rising direct burn of crude oil for power generation, which is likely to reach nearly 600,000 b/d this summer. Instead of burning natural gas or fuel oil, Saudi Arabia uses unrefined crude oil. Electricity consumption in the Gulf explodes during the summer air-conditioning season when temperatures peak above 40C.
The International Energy Agency, which recently reviewed Saudi direct burn of oil for power, says that it averaged less than 200,000 b/d in the early 2000s, but more than doubled to about 450,000 b/d in 2009. At that time many observers thought that Riyadh was burning more oil as global oil demand had collapsed due to the global financial crisis. But direct crude oil burning had continued to rise in spite of the global economic recovery.
The IEA now estimates that Riyadh will burn on average 581,000 b/d this year (with a peak of 740,000 b/d in the period between April and September). To put that consumption in context: Ecuador, the smallest member of the OPEC oil cartel, produces about 500,000 b/d on average, and Qatar pumps about 800,000 b/d.
The surge in oil demand during the third quarter of the year, when temperatures peak in Saudi Arabia, is so intense that the kingdom almost matches for that one quarter the level of consumption seen in India and Russia, the world’s fourth and fifth largest consumers. As such, it is no wonder that Riyadh is boosting oil production. It currently needs it itself.
Javier Blas is commodities editor at the Financial Times
The emergence of Saudi Arabia as an important consumer sets a critical new trend that could have profound implications for oil prices over the next few years. As the kingdom’s oil demand surges, the exportable surplus narrows, tightening global oil markets.
The country is on course to consume an average of 2.81 million barrels a day of oil this year, making it the world’s sixth-largest oil consumer behind the U.S., China, Japan, India and Russia. On a per capita basis, its oil consumption is sky high. This year, its consumption is set to jump by 5.6 per cent, way above the global average of 1.4 per cent.
Saudi oil demand has risen by 75 per cent in the ten years since 2001 due to strong economic and industrial growth and subsidized prices. The strong surge contrasts with the more modest increase of 39 per cent in the 1990-2000 period.
Contributing most to the strong growth over the last decade is the rising direct burn of crude oil for power generation, which is likely to reach nearly 600,000 b/d this summer. Instead of burning natural gas or fuel oil, Saudi Arabia uses unrefined crude oil. Electricity consumption in the Gulf explodes during the summer air-conditioning season when temperatures peak above 40C.
The International Energy Agency, which recently reviewed Saudi direct burn of oil for power, says that it averaged less than 200,000 b/d in the early 2000s, but more than doubled to about 450,000 b/d in 2009. At that time many observers thought that Riyadh was burning more oil as global oil demand had collapsed due to the global financial crisis. But direct crude oil burning had continued to rise in spite of the global economic recovery.
The IEA now estimates that Riyadh will burn on average 581,000 b/d this year (with a peak of 740,000 b/d in the period between April and September). To put that consumption in context: Ecuador, the smallest member of the OPEC oil cartel, produces about 500,000 b/d on average, and Qatar pumps about 800,000 b/d.
The surge in oil demand during the third quarter of the year, when temperatures peak in Saudi Arabia, is so intense that the kingdom almost matches for that one quarter the level of consumption seen in India and Russia, the world’s fourth and fifth largest consumers. As such, it is no wonder that Riyadh is boosting oil production. It currently needs it itself.
Javier Blas is commodities editor at the Financial Times
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