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Saudi Arabia Oil Demand - March 2017

Source: OPEC 4/3/2017, Location: Middle East

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In Saudi Arabia, January 2017 oil consumption continued to fall on the back of slower-than-anticipated requirements in the electricity and construction sectors. Oil demand declined by 0.18 mb/d from January 2016 levels, with all products declining, with the exception of LPG, which recorded solid gains adding some 13.7% y-o-y. Crude oil for power generation was lower on a y-o-y basis and burning crude for the purpose of generating electricity declined in line with seasonal norms. Demand for power generation traditionally slows during 1Q as consumption requirements for air conditioning are trimmed. Additionally, the Kingdomís new policies of reducing subsidies for electricity in the residential and industrial sectors appear to have reduced the level of consumption in the country. Lastly, the impact of substitution was observed in the consumption of direct crude for burning performance since 2Q16 when the Wasit Gas Plant (WGP), located in the north of Jubail Industrial City, which produces around 1.7 billion standard cubic feet per day (bscfd) of clean sales gas, started supplying natural gas to electrical power and desalination plants in the Kingdom. Diesel oil requirements also shrank in January, shedding some 0.13 mb/d, or around 18.2% y-o-y. This reduction is primarily on the back of lower construction activities in the country. Transportation fuels in general were also seen declining with gasoline and jet/kerosene dropping by around 7.2% and 11.5% y-o-y, respectively. The reduction in subsidies, a general slowdown in consumer spending and higher inflation rates are cumulatively having a negative influence on productsí performance. On the other hand, consumption for LPG rose by 7 tb/d on the back of extra demand in the petrochemical sector. With fuel oil receiving support from 4 GW of new fuel oil generation capacity, the product increased by 42 tb/d y-o-y.

The oil demand performance was rather mixed in the region. While growth in oil requirements declined in IR Iran, it increased slightly in Kuwait and Iraq and solidly in Qatar. Going forward, Middle East oil demand is subject to the performance of various economies in the region. The impact of oil prices on countriesí spending plans needs to be closely monitored. The issues of subsidy reduction and substitution are important factors going forward.

For 2016, Middle East oil demand recorded contraction of around 13 tb/d y-o-y, while oil demand in 2017 is projected to increase by around 0.11 mb/d.

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