Saudi Fuel Oil Demand Jumps While Global Consumption Drops

Residual fuel consumption in Saudi Arabia jumped to 625,000 bpd in April, the highest since October last year, and contrary to the general global trend of declining fuel oil demand worldwide, according to the International Energy Agency (IEA).

"Although Saudi Arabia increasingly desires to move its domestic power sector away from crude oil towards natural gas, residual fuel oil has become increasingly important,” the IEA said in its monthly oil market report released Thursday, and quoted by Platts.

“Indeed, [Saudi] use of fuel oil may grow strongly as 2020 approaches with the possibility of more material becoming available due to the International Maritime Organization-mandated changes in marine fuel specifications,” the IEA said.

Although oil product demand globally is strong, fuel oil demand has been declining in consumers such as India, Japan, Korea, and Russia, according to the international agency.

On the other hand, higher Saudi demand is mostly driven by the power generation sector and by desalination plants.

“The Saudis have been one of the few [countries] increasing their fuel oil intake, largely because they've realized how uneconomical it is to use their own crude oil for power use,” one fuel oil trader told Platts.

According to market sources, Saudi Arabia imports fuel oil from Greece’s Motor Oil Hellas, which ships one cargo per month to Saudi Aramco under a term contract.

In its International Energy Outlook 2016, the EIA said last year that large reductions in global demand for residual fuel oil (RFO) are expected to come from decreases in its use for power generation and for space heating.

“In the power sector, the cost of pollution controls, maintenance, and RFO heating often offset the lower cost of RFO in comparison with natural gas and other more expensive fuels. Consequently, power sector demand for RFO, especially in industrialized countries, is expected to decrease, although it may continue to serve as a transitional fuel in the power sectors of non-OECD countries that may be more sensitive to price and less sensitive to environmental and health implications,” the EIA said.

By Tsvetana Paraskova for Oilprice.com

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