Summer Again – The Swing in Oil Demand in Saudi Arabia

It’s that time of year again when Saudi Arabia’s domestic oil and gas consumption is in the limelight. Saudi Arabia faces sharp upward swings in oil demand during the summer, raising some market concerns about its export potential during the summer months. These sharp demand swings could influence oil prices, especially at times when the call on Saudi output is high and rising and when oil fundamentals are perceived to be tight. This comment argues that in order to understand the underlying dynamics behind such swings in oil demand, it is important to focus on the structure of the power sector, and on the evolution of the fuel mix in this sector. It concludes that while Saudi Arabia has some options in the long term (post 2020), the consumption of liquid fuels in the power sector will continue to present a challenge to Saudi policy makers in the short to medium term. For the next few years, liquids consumption by the power sector will continue to increase at a rapid pace, driven by rapid growth in electricity demand, low energy and electricity prices, and by infrastructure and technical constraints that will prevent higher penetration of gas in the power sector.

By: Bassam Fattouh

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