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Market Chatter: Saudi to Burn More Fuel Oil for Power as Crude, Gas Output Remains Low

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Saudi Arabia is expected to burn more imported fuel oil to produce power during the summer season, as it continues to curb domestic production of crude oil and natural gas amid persisting shipping disruptions in the Strait of Hormuz, Reuters reported Thursday, citing analysts.

Saudi's power consumption typically rises from April and peaks in August, due to increasing demand for cooling.

Vortexa data, as cited by the news agency, showed Saudi Aramco's fuel oil imports jumped 86% year over year to about 1.7 million tons in April, as power plants replace gas with fuel oil in preparation for the summer period.

This uptrend indicates a likely increase in oil burn this year, Rystad Energy analyst Rahul Choudhary reportedly said, countering the kingdom's efforts to switch to more gas and renewables.

Burning of crude and fuel oil for power could exceed 1 million barrels per day this summer, relative to the previous year's 991,000 barrels per day, according to Choudhary.

At the same time, most analysts cited by Reuters expect Saudi to consume more fuel oil and less crude oil for power, due to economics and as the country prioritizes crude exports at the Red Sea port of Yanbu.

Rystad reportedly projects direct crude burn to average between 540,000 b/d and 550,000 b/d this summer. This compares with last year's June to September average of 593,500 b/d, based on data from the Joint Organizations Data Initiative, cited by the news agency.

Wood Mackenzie told Reuters that crude burn may drop by 5,000 b/d to 15,000 b/d, versus last year's June to August average of 629,000 b/d.

On the contrary, Energy Aspects reportedly expects Saudi to increase crude burn this summer due to limited exports, with Hormuz transits likely to remain disrupted through May and to recover by only 70% in August.

has reached out to Saudi Aramco and the country's Ministry of Energy for comments.

Restrictions in oil flow following the onset of the US-Iran war have prompted Saudi Aramco to utilize the East-West pipeline to divert its crude oil exports, albeit at a smaller volume, to the west coast.

Shipping disruptions have also curbed Saudi's oil production to 7.7 mmbbls/d in March and 6.8 mmbbls in April, from pre-war levels of around 10 mmbbls/d, data from the Organization of the Petroleum Exporting Countries showed.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

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