Middle East Oil Demand - September 2016

In Saudi Arabia, despite increasing transportation fuel requirements, total product consumption declined in July for the fourth consecutive month. Oil demand contracted by 87 tb/d, with total product consumption at 2.66 mb/d.

Oil demand in Saudi Arabia follows a certain pattern, which tends to push oil demand higher in the summer due to additional air conditioning usage, however, the substitution with natural gas, particularly after the commencement of the Wasit gas plant, caused direct crude for burning to drop sharply by more than 0.15 mb/d, or about 17.8%, y-o-y, pressuring the overall consumption figures of the country. Total demand of direct crude for the purpose of burning was at 0.70 mb/d in July.

Transportation fuels, gasoline and jet/kerosene, registered positive growth as both products tend to increase during the summer season, which also coincided with end of the holy month of Ramadan and the Eid Al-Fitr holidays. Gasoline gained 6.4% over July 2015, while jet/kerosene remained broadly flat. On a cumulative basis, with data up to July, gasoline grew by around 15 tb/d, or 2.7%, y-o-y, slower than the rate of growth experienced in the same period in 2015, when gasoline added more than 6.0% y-o-y. This slowdown in gasoline demand growth momentum could be attributed to a reduction of subsidies, however, more information will need to be gathered to arrive at a more accurate and meaningful reading of data.

During the month of July 2016, diesel oil dropped by 14 tb/d, or around 1.8%, y-o-y, as construction activities and other outdoor work were reduced due to the end of the Ramadan holidays and high temperatures. Fuel oil increased by more than 90 tb/d, or 23%, y-o-y, primarily to meet additional power generation demand.

In Iraq, oil demand growth moved into negative territory in July, shedding around 16 tb/d from the levels seen in July 2015. Total product demand is now at around 0.67 mb/d, the highest total consumption level in 2016 as consumption for power generation fuels rose during the summer. The product categories had mixed performances with demand for fuel oil increasing, while diesel oil and the “other product” categories lost ground, dragging the overall consumption lower.

In 2017, oil demand growth is foreseen to rise over the levels see this year as economic momentum gains pace. Saudi Arabia is expected to be the oil demand growth driver in the region with transportation fuels and petrochemical feedstocks projected to be contributing to product growth. However, subsidy reductions, substitution towards natural gas and geopolitical concerns are expected to weigh on product demand growth in 2017.

For 2016, Middle East oil demand is projected to increase by 70 tb/d. In 2017, demand in the region is anticipated to grow by 0.18 mb/d.