Oil Demand Likely Rising in Middle East

Oil Demand Likely Rising in Middle EastOil Demand Likely Rising in Middle East

Saudi Arabia raised its oil production to a record last month while much of the kingdom sweltered in record temperatures that have also hit neighboring countries across the Middle East.

There is not enough statistical data to draw a direct connection between the two but it is likely most if not all the extra oil production was burned in the kingdom's power plants to meet electricity demand, Reuters reported.

Saudi Arabia's power generators rely heavily on burning unrefined crude as well as residual fuel oil and diesel to meet electricity demand.

Combustion of crude, heavy fuel oil and diesel accounted for 68% of the fuels used to generate electricity in 2014, according to the Saudi Electricity and Co-Generation Regulatory Authority.

Crude combustion accounted for 44% of fuel burned in power plants with heavy fuel oil accounting for another 13% and diesel for 11%.

Electricity demand surges during the summer months each year, as temperatures rise and air conditioning load on the grid increases.

To help meet the extra fuel demand from power producers, the kingdom usually ramps crude output up during the summer and then cuts production back in the autumn.

In most years, Saudi crude production follows a pronounced seasonal pattern, peaking between June and August before falling again.

Crude and refined products are the marginal source of power production, so changes in fuel consumption are closely related to power demand and changes in temperature.

Like much of the Middle East, Saudi Arabia has been hit by a heat-wave during July, which has persisted into early August.

Temperatures have been above normal throughout the kingdom, according to data from the US National Oceanic and Atmospheric Administration.

The implication is that air conditioning load on the grid has been higher than usual, which should increase combustion of crude and refined products.

Saudi sources have reported crude production was 10.55 million barrels per day in June 2016, essentially unchanged from June 2015.

Oil output hit 10.67 million bpd in July, which was around 300,000 bpd higher than in July 2015, an increase of about 3%.

Saudi Arabia's combustion of crude and refined products for power production amounts to more than 1 million barrels per day during the summer months.

Given record heat across the kingdom this summer, it is likely most of the reported increase in crude production has been burned in the kingdom's power plants rather than marketed for export.