Saudi defense of oil price cuts kingdom’s shares of top markets

Sept. 4, 2017
Saudi Arabia sacrifices much in its side efforts to manage oil supply.

Saudi Arabia sacrifices much in its side efforts to manage oil supply.

The kingdom’s production of crude oil rose to 10.05 million b/d in June and July, according to the International Energy Agency’s August Oil Market Report.

Compliance with the country’s Organization of Petroleum Exporting Countries quota thus fell to 102%. So far this year, IEA says, Saudi compliance has averaged 123%.

Because Saudi production always increases during summer, officials are restraining exports. They’re also, according to analysts at RBC Capital Markets, favoring exports to countries with opaque inventory data.

Saudi exports now are about 290,000 b/d below normal, seasonally adjusted, write Michael Tran, Helima Croft, and Christopher Louney in an Aug. 25 report.

A pledge to cut exports to Asia “should help global balances as Asia is left with pulling incrementally more barrels from oversupplied regions like the Atlantic Basin,” they say. But the tactic is costly.

In the 3 years before oil prices plunged in 2014, Saudi Arabia supplied 19.6% of the high-growth Chinese market. Since then, its share has fallen to 12.6%.

At the pre-2014 market share, Saudi exports to China would have been higher by 214,000 b/d in 2014, 307,000 b/d in 2015, 468,000 b/d in 2016, and 599,000 b/d in 2017, according to the analysts.

They estimate erosion of Chinese market share has cost Saudi Arabia $30 billion. Until May, they add, Saudi Arabia had exported an average 1.2 million b/d to the US. Since then, exports to the US have fallen to 850,000 b/d, “trending almost 345,000 b/d below seasonally normal levels through the summer.”

With US imports falling overall, the analysts note, Saudi Arabia is losing share of a shrinking export market for which it has long been a topthree supplier.

Saudi insistence on defending market share in 2014 crushed the crude price. Reversal of that strategy to defend price now cuts Saudi market shares in the world’s top two oil importing countries.

An oversupplied oil market is never easy to manage.

About the Author

Bob Tippee | Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.