The oil market is currently very well supplied. Supply exceeds demand, which allows stocks to accumulate (serve as a cushion for future shortages), thanks to the growing production of crude oil in America (USA, Canada, Brazil, Guyana, Argentina…) . Additionally, within the Organization of the Petroleum Exporting Countries (OPEC), there is a large reserve of unused production due to cartel cuts. As if all of the above wasn’t enough, Saudi Arabia and Iraq have a plan to flood the oil market without needing to produce a single drop of additional crude oil.. How to achieve something that seems impossible at first glance? Although it may seem contradictory, this plan has a very simple explanation: Riyadh and Baghdad will reduce the consumption of national oil (to produce energy) with the aim of being able to export much more oil.
The term flood is frequently used in the oil market to refer to a situation in which producing countries significantly increase their exports, driving down prices, thereby “flooding” the market in question. In this case, the flood would not be due to an increase in production in crude oil-producing countries, but rather to a sharp drop in internal demand from these producers, which will allow them to export much more oil in an already well-stocked market.
Better to sell oil than to burn it
Currently, both Saudi Arabia like Iraq and other OPEC countries use large quantities of oil to produce electricity. It seems logical that these countries would use their vast resources to produce the energy that is consumed domestically. However, Saudi Arabia and Iraq have understood that it is much more profitable to export this oil (the prices of which on the international market are expensive) and are looking for other methods of producing energy at the level national. In this way, if Saudi Arabia and Iraq together produce around 13 million barrels of oil every dayAs these new energy production projects scale up, they will be able to export more of their production.
This is clear from the International Energy Agency’s (IEA) latest report on future oil forecasts. “Saudi Arabia and Iraq have ambitious plans to reduce their oil consumption Energy production contributes in a transcendental way to controlling the growth of global oil demand”, underlines the IEA. On the one hand, Saudi Arabia and Iraq will be able to export more oil, while their drop in demand will impact global crude oil consumption.
“It is estimated that the countries of the Middle East They used more than 1.5 million barrels of oil per day to generate electricity in 2023. (only to produce electricity), about 40% of total global oil consumption and one-sixth of total regional oil consumption,” says the IEA. These countries are rich in oil, but the use of this raw material to produce energy is a real challenge in economic terms, since electricity can be produced with much cheaper energy sources. Using oil to provide electricity to homes. it’s like trying to light a bonfire with gold bars (in case these are a good fuel). This is why several countries in the region have started to invest in changing their energy mix and). to be able to “inject” new crude oil into an increasingly competitive international market (China, USA, Guyana, etc.).
Fuel oil and direct combustion of crude oil each accounted for about 600,000 barrels per day. Much of this energy is concentrated in Saudi Arabia and Iraq, where it plays a crucial role in managing peak electricity demand in summer. “We believe that this substitution of energy sources, focused on new gas and solar capacities, will reduce the amount of oil used in the production of 1.1 million barrels per day by 2030“.
In other words, simply with greater energy production at thanks to renewable energies (in particular solar), nuclear and gas combustionthese countries will add 1.1 million barrels of crude oil per day to the market, almost the amount of oil that all of Spain consumes every day. To the above, we must add Iraq’s plans to increase its crude oil production, which is not analyzed in this article, but which will undoubtedly have an amplifying impact.
Fill the desert with solar panels
Saudi Arabia is currently the world’s largest consumer of oil for electricity generation, but has announced plans that would end this dependence by 2030 in favor of natural gas and renewable energy (including solar power). , installing plates in the sunny desert). The Kingdom’s liquid fuel replacement program would eliminate approximately one million barrels per day of crude oil, fuel oil and gas oil consumption through a combination of domestic gas resources, particularly those from the Jafurah project, and a significant increase in renewable energy production, according to the IEA projections.
Based on these plans, “we estimate that direct combustion of crude oil will be reduced by 500,000 barrels per day between 2023 and 2030, while consumption of fuel oil and diesel will decrease by 350,000 and 150,000, respectively.” objective that 50% of electricity comes from renewable sources by 2030, with a target of 130 GW of renewable capacity”, they underline from the IEA.
Despite substantial growth in other sectors, sSaudi Arabia’s total domestic consumption is expected to decline by 530,000 barrels per day (14%). between 2023 and 2030. Only the United States will experience a greater decline in absolute terms between 2024 and the end of the decade. These two countries, the world’s leading oil producers, will record the largest drops in demand. It is ironic that the two largest oil producers in the world are the ones who will reduce their demand for crude oil the most. In the case of the United States, the electrification of the automobile fleet (led by Tesla) will have a lot to do with it.
The curious case of Iraq
The case of Iraq is less relevant due to its lower overall impact, but it will also be noted. Iraq’s power grid has come under strain in recent years due to a variety of factors. Power plants are struggling to meet growing summer demand, even with electricity imports from neighboring countries. Currently, the country receives electricity and gas from other countries, including Iran.
In addition, The agreement under which Iraq receives Iranian gas was extended for five years in March 2024meaning that domestic production and new imports from other sources can be used to fill the demand gap and reduce oil consumption. Burning oil to produce electricity is “economic waste” which is also very polluting. Why produce electricity with expensive oil when you can produce it with gas or sunlight? This is Iraq’s plan: import cheap gas from Iran to sell more of its own oil.
The country burns on average about 150,000 barrels of crude oil each day and about 360,000 barrels of fuel oil (also made from petroleum), but began reducing its consumption of crude oil for power generation in May. In addition, with technological support from the United States, Iraq intends to capture the gas associated with its vast deposits, currently burned in oil fields, to produce energy. Furthermore, TotalEnergies is working on projects aimed at developing new gas and solar energy resources in the country.
“We estimate that these changes will result in a reduction of 120,000 barrels in direct burning of crude oil by 2030. These changes would be enough for oil demand from Saudi Arabia and Iraq to peak in the middle of this decade, comfortably ahead of global demand as a whole,” explains the IEA.
But the best thing for these countries is that the oil they do not use to produce electricity can be sold abroad to increase their export revenues. This is also underlined by the IEA in the last part devoted to the transformation experienced by energy production in these countries: “In the transformation process, substantial additional volumes of crude oil would be available for export”.
