Saudi Arabia Becomes Net Fuel Oil Importer
Saudi Arabia in September flipped to a net importer of residual fuel oil for the third time since record-keeping began, Joint Organisations Data Initiative (JODI) data showed, potentially having a "significant" impact on the outlook for the fuel.
Saudi Arabia's fuel oil consumption typically spikes during its summer months, when demand for power generation peaks, but recently demand for the industrial fuel has been boosted by an increase in oil-fired power generation capacity.
The kingdom is also switching away from the direct burning of crude in the power sector to free up more raw oil for export.
"Saudi turning into a net importer of fuel oil has less to do with seasonality, and more to do with the start-up of two new power plants running on fuel oil," said Energy Aspects oil products analyst Nevyn Nah.
The other two times Saudi Arabia was a net fuel oil importer was in November 2014 and August 2008, according to JODI data.
Saudi Aramco, which is responsible for the kingdom's energy supplies, did not respond to requests for further detail on the potential for more fuel oil imports.
GLOBAL SUPPLY IMPACT
With fuel oil exports from key producers like Russia and Venezuela already on the decline, Nah said Saudi Arabia's transition to a net fuel oil importer in September is "very significant."
If the trend continues, it can contribute to a structural tightness in global supplies of residual fuel, he said.
Saudi Arabia plans to add another three oil-fired power plants, with a total of 8.34 gigawatts (GW) in capacity, over the next two years, according to a report published by the Oxford Institute for Energy Studies in July.
However, traders say the use of fuel oil as a power plant feedstock over crude will always be a function of cost.
Asian fuel oil refining margins to Dubai crude - essentially the price differential between fuel oil and crude oil - have rallied over the past few months to some of their highest levels in nearly five years amid robust demand and tightening supplies for the industrial and power fuel.
Traders said if fuel oil refining margins continue to strengthen against crude prices, power generators could switch away from using fuel oil back to direct burn crude instead.