Saudi cuts crude burn while OPEC+ lifts output

Saudi Arabia is releasing 500,000 extra barrels of crude per day into the market this month. The reason? Production is going up, and the need to burn oil at home is falling fast now that summer is cooling down.

This comes at a time when global traders are already worried the oil market is heading for a glut. The added supply is expected to grow even more through the rest of this year and into 2026.

That’s partly because Saudi Arabia is launching a massive natural gas project that will help stop using oil locally and send more of it abroad. The increase matters because Saudi domestic demand usually spikes during the hottest months when the kingdom burns oil to power air conditioners.

But this year, that demand was unusually high, holding back exports and keeping prices supported. With temperatures dropping, that buffer is disappearing.

Saudi cuts crude burn while OPEC+ lifts output

Oil burned for electricity in Saudi Arabia jumped to over 900,000 barrels a day in August, the highest since at least 2009. Kpler projects it will fall by a third in September and drop under 400,000 barrels per day in October. That alone is sending hundreds of thousands of barrels back into global circulation.

At the same time, Saudi Arabia is increasing its production quota. It’s leading OPEC+’s push to bring back previously capped output. The producer group is counting on strong demand to keep prices stable, but that may not happen.

“We expect global oil demand to have set a peak for the year in August, with temperatures in the Middle East slowly declining, and a peak in travel in the northern hemisphere,” said Giovanni Staunovo, an analyst at UBS Group AG. He said oil use will “modestly decline over the coming months.”

Oil prices are already feeling it. Brent crude was trading around $67 on Thursday, down 10% this year. UBS expects it to slide to $62 by year-end. Goldman Sachs says prices might sink to the low $50s next year. The International Energy Agency projects a record surplus in 2026, based on current supply trends.

But Saudi Arabia doesn’t see it that way. It expects oil demand to keep climbing, especially from Asia. Amin Nasser, the CEO of Saudi Aramco, said in August that demand in the second half of the year would rise by 2 million barrels per day compared to the first half, and is expected to grow even more when the Jafurah gas project kicks in.

The gas project will replace 35,000 barrels per day of crude burned domestically after operations start later this year. When it reaches full capacity in 2030, it’ll free up as much as 350,000 barrels per day for exports, according to Rystad Energy.

Traders weigh rising supply against China demand and sanctions risk

Oil took another hit Thursday. Brent futures dropped $1.13 to $66.36, and U.S. West Texas Intermediate fell $1.16 to $62.51. The dip followed a new warning from the IEA, which said supply will grow faster than expected this year, especially with OPEC+ raising output.

OPEC later released its own report and kept its non-OPEC supply and demand forecasts unchanged, claiming demand remains steady. Despite the warnings, the OPEC+ alliance confirmed on Sunday that it will raise production starting in October.

The market is now stuck between two forces. On one side, supply is rising, and inventories are climbing. On the other, there’s ongoing tension in Ukraine and the Middle East, raising fears of disruption.

Saudi Arabia is also shipping more oil to China. Trade sources told Reuters that Aramco will export 1.65 million barrels a day to China in October, up from 1.43 million in September.

UBS’s Giovanni said the market is now watching whether China will slow down imports, which could leave inventories piling up in OECD countries. There’s also concern about Russia, with investors keeping an eye on more sanctions that could affect its oil trade.

On the U.S. side, government data showed crude inventories rose by 3.9 million barrels in the week ending September 5. That surprised traders who had expected a draw of 1 million barrels, raising new doubts about American demand.

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