Saudi Crude Burn Set to Rise This Summer

Saudi Arabia’s direct crude burn for power generation is likely to rise this summer compared to last year, potentially easing part of the concerns about a global oil glut as the OPEC+ group continues to unwind its production cuts.

Amid rising prices for fuel oil, another staple in power-generating fuels in the Middle East, many countries will be looking to burn more of their crude supply, traders and analysts have told Reuters.

Crude burn, the direct use of crude oil in power plants for electricity generation, and the burning of fuel oil remain key pillars of Saudi power generation.

Saudi Arabia uses a lot of fuel oil and crude for electricity generation in the hot summer months when power consumption peaks with demand for air conditioning soaring.

This summer, the crude burn between June and August could be higher than in 2024.

Saudi crude burn rates could be between 465,000 bpd and 470,000 bpd, up by 10,000 bpd to 15,000 bpd compared to the summer of 2024, according to estimates by energy consultancy Wood Mackenzie.

The higher crude volumes that would go to domestic power generation would be the result of the rising price of high-sulfur fuel oil (HSFO) as refining margins for the fuel have recently hit a record $4.45 per barrel.

“Lower crude prices and higher HSFO cracks are expected to shift some power generation demand from fuel oil to crude burn,” Priti Mehta, a senior research analyst for short term refining and oils at Wood Mackenzie, told Reuters.

Saudi Arabia, as OPEC’s top producer, is raising its crude oil production the most among the OPEC+ alliance, as it had pledged the steepest cuts in the agreement. More crude going to Saudi domestic power generation could be welcome news for oil bulls as the coming market glut may not be as severe as analysts expect.

By Tsvetana Paraskova for Oilprice.com