Some market participants have expressed concern that any increase in crude supply as may be forthcoming from Saudi Arabia and other producers this summer may be partly, or even fully, absorbed by seasonal increases in their own domestic demand, compounding the impact of robust trend consumption growth in those economies. Those concerns are understandable, given the magnitude of estimated summer demand swings in the Middle East, especially in recent years. However, there is no clear evidence that past summer spikes in Middle East demand, have come at the expense of exports. The view that seasonal swings in domestic demand can only be satisfied at the cost of reduced exports ignores inventory changes, an assumption that seems simplistic.
According to the International Energy Agency (IEA), Middle Eastern oil demand grew by 2.5 million barrels per day (bbl/d) from 2001 to 2010, roughly the same as all emerging Asian countries except China. In percentage terms, Middle East oil demand expanded by nearly 50% over that decade, second only to China's 94% growth, and accounted for one fourth of world demand growth. Two countries dominate the region by the size of their domestic oil market: Saudi Arabia, which accounted for roughly 34% of regional demand in 2010, and Iran, 27% (the former's share is likely rising and the latter's declining).
A convergence of factors accounts for the strength of Middle Eastern demand growth. First, rising oil prices have brought the region's main oil producers an export windfall in the last decade, propelling strong economic growth. The region's population is also the world's youngest, with explosive growth rates. In the last few years, fast rising incomes and housing demand have fueled a spectacular construction boom in parts of the region. Last but not least, subsidization keeps energy cheap for consumers, fostering a perception of cheap oil as an entitlement. Only Iran recently won kudos from the International Monetary Fund for de-subsidizing oil prices, a praise admittedly based on unaudited official data. Current unrest in parts of the Middle East and North Africa is more likely to postpone other attempts at de-subsidization, as subsidy cuts can be a source of contention and protests in countries that attempt them.
As Middle Eastern oil demand has grown, its seasonal cycles have become clearer. Nowhere has this been more apparent than in Saudi Arabia. Monthly consumption data published under the Joint Organisations Data Initiative (JODI) shows Saudi oil demand has a winter trough, usually in January or February, and a summer peak, typically in late summer. As Saudi demand has grown in recent years, so has the magnitude of that seasonal swing. In 2005, the gap between a low consumption point of 1.1 million bbl/d and a high of 1.5 million bbl/d was 370,000 bbl/d. By 2009, that seasonal gap had more than doubled, from 1.5 million bbl/d to 2.4 million bbl/d. In 2010, at 815,000 bbl/d, the gap remained wide by historical standards, even as yearly consumption continued on a steep growth path. Elsewhere in the region, Kuwait also exhibits strong demand seasonality, though official data suggest the country's overall demand growth is slower and seasonal patterns are steadier.