Saudi Arabia's consumption of residual fuel oil increased sharply in April to 625,000 b/d, its highest since October 2016 and bucking a general trend of falling demand for the product globally, the International Energy Agency said in its monthly oil market report released Thursday.
"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 report said.
"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," it added.
Saudi Arabia is a bright spot for a fuel oil market that is largely seeing waning demand. Most global regions saw a drop in fuel oil demand, in particular India, Japan, Korea and Russia, despite overall stronger oil product demand, according to the IEA.
Demand for residual fuel in non-OECD countries fell to approximately 5.32 million barrels in Q1 2017, down by over 2% from Q4 2017 levels of around 5.43 million barrels, the IEA said.
"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," said one fuel oil trader.
Saudi Arabia imports fuel oil from the Mediterranean, typically from Greece's Motor Oil Hellas which usually supplies one cargo a month to Aramco under a term contract, according to market sources.
"Most of the time the Greeks can meet their [Saudi Arabia's] demand, but I think soon they will have to bid in the European spot market."
Saudi demand is largely driven by power generation usage, but desalination plants are also a source of strong demand for fuel oil.
Source - Platts