Analysis of the demand for petroleum refined products in Saudi Arabia

Scope and method of study. The main purpose of this study is to estimate and analyze the demand for gasoline, diesel, and kerosene in Saudi Arabia in order to identify the key factors influencing the consumption of these products. The methodology employs both descriptive and statistical analysis. The descriptive method is used to analyze the energy aspects, the historical development of the oil industries and the patterns and impact of oil on the Saudi economy. The statistical method consists of using econometric techniques to derive and analyze the demand curves for gasoline, diesel, and kerosene. Three demand equations are specified; each is rooted in economic theory and the institutional framework of Saudi Arabia. They are estimated with ordinary least square techniques, using time series annual data for the period 1967 to 1983. An ex-post simulation was carried out to validate each equation. A five year projection was performed under four scenarios set for the period 1984-88 for policy analysis purposes.;Findings and conclusions. The statistical results obtained show that the gasoline equation performed the best. It showed inelastic price and income in the short and long run. Diesel showed unexpected price elasticity in the long run. It was price elastic. Both gasoline and diesel are positively affected by the previous year's consumption. Kerosene showed inelastic price and income and was found to be an inferior good. It was also found that kerosene can be substituted by natural gas. To curb the increase in the consumption of petroleum refined products and to reduce the dependency on oil, two policies were recommended: the conservation policy deals with the fuel consumption patterns and how they change; development of alternative energy policy deals with the introduction and expansion of other energy sources. The main conclusion drawn from this study is that energy analysis is related to the economic, technological and institutional factors in the kingdom. More efficient utilization of energy sources and more substitution possibilities will help to increase the performance of the present and future situation of the energy market in Saudi Arabia.