Saudi Arabia doubled imports of Russian fuel oil for power generation in Q2

Russia is selling fuel at cut prices after international sanctions over its special forces operation in Ukraine left it with fewer buyers.

The increase in sales of fuel oil used to generate electricity to Saudi Arabia shows the challenge US President Joe Biden faces as his administration seeks to isolate Russia and cut its energy export earnings.

While many countries have banned or discouraged purchases from Russia, China, India and several African and Middle Eastern countries have increased imports.

Biden was on a visit to Saudi Arabia on Friday and was expected to push for more oil supplies from the kingdom to world markets to help bring down oil prices that have exacerbated inflation worldwide.

Saudi Arabia and other countries have little spare capacity to increase production in the short term. Saudi Arabia also maintains cooperation with Russia through an alliance of global producers known as OPEC+. The two are the de facto leaders of OPEC and non-OPEC producers, respectively.

Data obtained by Reuters through Refinitiv Eikon ship tracking showed that Saudi Arabia imported 647,000 tons (48,000 barrels per day) of fuel oil from Russia through Russian and Estonian ports in April-June of this year. This is more than 320,000 tons for the same period a year ago.

For the whole of 2021, Saudi Arabia imported 1.05 million tons of Russian fuel oil.

The energy ministries of Saudi Arabia and Russia declined to comment on the increase in imports.

Energy analyst Vortexa has found that rising flows of Russian-origin fuel oil through Egypt and Estonia have boosted imports, Vortexa reported.

It was found that Saudi fuel imports from Egypt rose to a record 110,000 bpd in June, while Egypt’s imports of Russian fuel oil jumped to a record 70,000 bpd in the same month.

“Seasonal demand for power generation feedstock boosted Saudi Arabia’s fuel oil imports to 320,000 barrels per day in June, the highest since November 2020,” the company said in a statement.

Saudi Arabia has been importing Russian fuel oil for several years, which reduced the need to refine crude oil to produce products and reduced the amount of oil needed to burn energy, leaving it with more crude oil to sell on international markets at higher prices.

The Kingdom uses oil to meet electricity demand, which typically peaks when cooling demand rises with summer temperatures. Some cities in Saudi Arabia are far from natural gas deposits that could provide cleaner fuel for electricity generation.

The volume of crude oil burned is about 600,000 bpd in the summer months and 300,000 bpd in the winter months, according to the Joint Data Organizations Initiative (JODI). Increased use of natural gas has reduced its supply from 1 million barrels per day in 2010.

Hub in Fujairah
Saudi Arabia also imported more Russian fuel oil through the Middle East oil hub Fujairah in the United Arab Emirates, traders said.

Fujairah received 1.17 million tons of Russian fuel oil this year, compared with 0.9 million tons in the same period last year, according to ship tracking data.

An additional 0.9 million could be delivered to Fujairah in July alone, bringing the total to 2.1 million this year, more than the 1.64 million tons for all of 2021, according to the vessel tracking system.

Most of the fuel oil in Fujairah is sold there as fuel for ships, but some is sent to neighboring countries. It is not clear how much additional Russian fuel enters Saudi Arabia via Fujairah.

Saudi Arabia has increased its refining capacity to 3.6 million bpd from 2.9 million in 2017.

Its refining utilization rate was 70-73% in April-June this year, according to analyst firm OilX, despite production rising to more than 10 million barrels per day.

This is comparable to 75%-95% for the same periods of 2017-2019, when its production decreased last year due to production cuts by the Organization of the Petroleum Exporting Countries and allies (OPEC+).

Meanwhile, exports of crude oil and refined products were at or close to a record high of 9 million bpd in February-April, according to JODI data, with exports of crude oil alone at or close to 7.3 million bpd.

James Rogers

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