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Saudi Arabia is poised to increase the summer crude burning for power as fuel oil costs rise

Saudi Arabia is poised to increase the summer crude burning for power as fuel oil costs rise

Analyst and trade sources say that Saudi Arabia will burn more crude oil this summer for electricity generation than it did last year as the country ramps up production after OPEC+ relaxes supply controls, and fuel oil is becoming more expensive.

OPEC's kingpin, by burning more crude oil, could help ease concerns about global oversupply. OPEC+ (which includes the Organization of Petroleum Exporting Countries, as well as allies like Russia) agreed to increase production in April, may and June by almost 1 million barrels a day.

Wood Mackenzie predicts that Saudi Arabia will consume 465,000-470,000 bpd for electricity generation this year. This is an increase of 10,000-15,000 bpd compared to 2024. Several traders have also predicted an increase. FGE estimates that Saudi Arabia will consume 423,000 to 428,000 barrels per day (bpd) of crude oil for power generation this year, up from last year by 10 to 15 bpd.

During the summer months, when air conditioning is in high demand, the Middle East burns a lot of crude oil and HSFO.

Analysts have reduced their oil price predictions for this year, after OPEC+ decided to accelerate output increases. This has stoked concerns about rising supplies. However, the profits of refiners from producing HSFO using Dubai crude hit a record high of $4.45 a barrel.

Priti Mehta is a senior analyst at Wood Mackenzie who specializes in short-term refining, oils and oil products. She said that lower crude prices and increased HSFO cracks will shift some demand for power generation from fuel oil towards crude.

Saudi Arabia's Energy Ministry and Saudi Aramco have not responded to comments.

OPEC data shows that Saudi Arabia's oil output quota in June was 9.367 millions bpd. This is up from the 9.034million bpd of April.

David Wech is the chief economist of analytics firm Vortexa. He said that Saudi Arabia has an incentive to increase crude production but not export it. Burning it to generate electricity would be a good choice in this situation.

Analysts and trade sources said that high prices will likely limit Saudi Arabia's fuel consumption for electricity generation this year, while its imports of Russian oil are unlikely to surpass last year's records.

Since 2023, the kingdom has imported more Russian fuel oil at a discount for summer use as the price of Russian barrels dropped following Moscow's invasion in Ukraine.

Saudi Arabia generates most of its electricity using natural gas and oil. Renewable energy sources are minimal.

The country has signed agreements to expand the gas network at Jafurah and its production.

Woodmac's Mehta stated that "further increases in the liquid burn in 2025 will be limited due to the approximately 6 gigawatts renewable energy power plants being brought online, and the beginning of operations in the Jafurah Shale Gas Field later this year."

Rystad expects Saudi Arabia will reduce crude oil use and increase gas production for power generation by 2030.

(source: Reuters)