The extraordinary recent scene of Volodymyr Zelensky receiving a public dressing down from President Trump and his Vice J.D. Vance might have been imagined by some as the nadir of this current Administration’s delve into pantomime and Shakesperean tragedy. None of it, the online spat that has ensued following the all-too-predictable failure in the brief love-in between the most powerful man and the richest man in the world seems inspired by Macbeth and King Lear and takes the high office to even new lows. The world is a stage indeed, and this play’s script which has Elon Musk suggesting the President is involved in a notorious scandal, countered by a threat from Donald Trump to cut Musk’s government contracts seems so evocative that the investor audience feels compelled to join in. Shares in Tesla dumped 15% or $150b in value and dragged the Nasdaq by 1%, S&P by 0.5% and the DOW by 0.25% at the close. To give the whole affair its bizarre context, it totally outshone a phone call between Presidents Trump and Xi, that while not achieving anything of note in the Sino/US tariff trash talk, was at least dialogue and ought to have been greeted with a decent positive slant from markets. It really is the stuff of kings and egos and one can but imagine the future books and films this absurdity will inspire.

Oil prices fell foul to the risk switch throwing by investors who one minute were on, and the next off. Yet the Washington nonsense also kept from a view a worsening prospect for geopolitical drivers that are very much associated with oil. Donald Trump, who really has been busy, said of a conversation with the Russian leader that, "President Putin did say, and very strongly, that he will have to respond to the recent attack on the airfields." With Russian state-owned news agency RIA saying the attack was disruption aimed at peace, any ceasefire is rapidly disappearing. Not so far south, Israel has ominously said that it will not attack Iran while the nuclear negotiations are ongoing. A news article in the Wall Street Journal does suggest that Tehran may not be too hopeful of an outcome as it bolsters arms. Ordering ‘thousands of tons of ballistic-missile ingredients from China’, the WSJ quotes sources on Iran’s desire to rebuild military capabilities and even rearm some of the proxy militias that it is allied with. Given that a peaceful solution to both theatres of anxiety is prerequisite for more oil to flow, it is a fading prospect.

Burn, baby burn

What might just turn out to be a valuable consideration for those engaged on an almost daily basis in working out the ‘oil balance’ is the not much discussed issue of Saudia Arabia’s ‘crude burn’. This is the practice of directly using crude in the generation of electricity rather than from other forms of fossil fuel. Historical data is largely vague, but it is safe to say that with the economic growth of the Kingdom starting from the 1990s the practice has been increasing and at current evaluation by a variety of analysts stands at between 400 and 600kbpd. Some oil traders consider that estimate to be light, and during the height of summer will likely rise by more. If these expectations turn out to be true, they are a far cry from Saudi’s intention on moving away from direct burn to alternatives.  
Progress seemed to have been made at the beginning of the year with Middle East specialists MEES reporting the burning of oil in power plants was down more than 200kbpd year-on-year for the first two months of 2025. The analysis went on to opine the practice had dropped sharply to an 11-year monthly low of 589kbpd for February, and over the first two months of the year ran at its lowest level since 2016 (it must be noted that in the MEES representation, Fuel Oil is also included). This is in keeping with the announcement last year of the Liquid Displacement Programme (LDP), a cornerstone of the Kingdom’s energy mix alongside the National Renewable Energy Programme to rid itself of using one million barrels of liquid oil daily by 2030.

As with all alternative initiatives, they never deal with the here and now of demand and direct crude burn in the spring and start of summer is increasing rapidly. So much so that Wood Mackenzie last month predicted crude burn rates could be between 465kbpd and 470kbpd, up by 10kbpd to 15kbpd compared to the summer of 2024 which sees a likeness in FGE’s estimate of between 423kbpd and 428kbpd. One of the reasons traders and analysts alike believe an increase in crude burn is that refinery margin is in such decent shape that it makes much more sense for Saudi to export Fuel Oil than to use it for electricity generation. Indeed, and as cited on Reuters, Saudi's refined product exports, which include diesel, gasoline, jet fuel and fuel oil, rose to a record 1.58mbpd in March, before declining to 1.48mbpd in April and 1.42mbpd so far in May, according to data from ship tracking firm Kpler. Given the poor state of income from crude sales, Saudi’s oil infrastructure is so flexible that if can make up petrodollar loss from exports of refined products and thereby take advantage of such times as these when the Fuel Oil ARA crack has improved by some 50% since early January.

Burning crude at a time of depressed prices is a seasonal convenience and allows Saudi not to further pressure the world oil balance. It is also fiscally prudent as outlined above, but the question that ultimately follows this summer phenomenon is what happens to such a vast amount of crude when it has no place in the plans for domestic utilities which will wind down output due to the lower temperatures and the use from the cooling appliances needed in such extreme heat? Arguably, this might just be another motivation for Riyadh’s call for OPEC to allow another 411kbpd of shuttered crude to resume in August and September. Seasonality then works both ways. For all the fires in Canada, the Americans getting in their cars and Middle East countries undertaking direct oil burn, come September onwards they will be gone. Where then shall Saudi Arabia place its feedstock that no longer has a domestic home? While we accept that risk to prices in the short/medium-term is to the upside, we still hold a very much negative view for oil prices in the medium/long-term and the return of Saudi direct burn barrels gives even more reason to maintain such a stance.

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