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Page added on February 6, 2018

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Saudi Arabia: One-time ‘swing producer’ becomes ‘swayed producer’ of oil

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Saudi Arabia: One-time 'swing producer' becomes 'swayed producer' of oil  
© Getty Images

Oil prices have reached the $70-a-barrel mark, their highest since December 2014, but neither Saudi Arabia nor Russia is shouting with glee. That’s because it remains to be seen whether the oil market has achieved price stability for awhile.

Saudi Energy Minister Khalid al-Falih this month spoke of the “fragility of the market.” He noted that a much-anticipated initial public offering of Saudi Aramco stock will take place “when the time is right,” but declined to say about whether the IPO could be postponed to 2019.

OPEC and non-OPEC powers such as Russia worked out a volume-cut deal last year that has played a key role in boosting prices. Al-Falih emphasized the importance of the deal, and hinted that it ought to be extended beyond 2018. But Russia has shown little enthusiasm for extending it. 

Earlier this month, Russian Energy Minister Novak broached the idea of “a smooth exit” from the agreement. And Vagit Alekperov, the president of Russia’s largest oil producer, Lukoil, said Russia “had to leave the deal” once prices reached $70.

A recent meeting of OPEC members in Oman squelched rumors that the deal might be terminated, returning relative stability to the market. But Saudi Arabia continues to rely on Russian support to maintain market equilibrium.

Before the U.S. shale revolution began a decade ago, Saudi Arabia’s production was the most important variable in determining global oil prices. The kingdom’s ability to produce and export however much crude oil it wanted not only allowed it to control oil prices but also to use oil to influence geopolitics.

History is full of examples of Saudi intervention in the oil market. While the Saudi-led OPEC oil embargo of 1973 is the example that comes to most people’s minds, the Saudis’ production cut during the financial crisis of 2008 sparked a price rebound within six months.

Although the kingdom continues to be one of the world’s largest producers and exporters, it cannot single-handedly impact oil markets the way that it once did. A surge in U.S. shale production, slow growth in demand, and concern about a coming peak in demand have led to tectonic changes in oil market power dynamics.

According to the Energy Information Administration, United States crude oil production exceeded the 10 million b/d mark for the first time since 1970. Russia and Saudi Arabia are the only other two countries that could compete with U.S. production rates. With its declining influence over the oil market, Saudi Arabia has begun to diversify its economy away from oil. Now that a triumvirate reigns, the kingdom must factor in U.S. shale production, whether Russia wants a volume-cut deal to continue, and other geopolitical factors when it seeks a formula for maintaining market stabilization.

While free-market principles dictate the U.S. shale industry’s behavior, Saudi Arabia is dependent on Russian leaders’ oil policy determinations to achieve stabilization. In the meantime, it continues to lose market share to other producers — mainly Russia — because it agreed to larger cuts than any other participant in the current agreement.

No one knows how long Saudi Arabia will continue supporting a volume-cut deal. What is obvious is that the onetime swing producer — the country that could once single-handedly affect prices — has now become a swayed producer, or one that can impact prices but not all by itself.

The United States must ensure that Russia doesn’t outmaneuver it to increase its influence over global energy policy, and thus prices. This means the United States must keep a close eye on relations between its most important allies in the Gulf and its rival Russia. Gulf countries, especially Saudi Arabia, continue to be among the world’s biggest oil exporters. And American oil companies are still major oil and gas producers in the region.

The United States needs to keep lines of communication open with the Saudis and other Middle Eastern oil producers to address security challenges in the region and to maintain its influence in the wider world.

Rauf Mammadov is resident scholar on energy policy at The Middle East Institute, focusing on issues of energy security and global energy industry trends.

The Hill



13 Comments on "Saudi Arabia: One-time ‘swing producer’ becomes ‘swayed producer’ of oil"

  1. MASTERMIND on Tue, 6th Feb 2018 8:42 am 

    Saudi Arabian oil reserves are overstated by 40% – Wikileaks
    https://www.theguardian.com/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    Saudi Aramco CEO sees oil supply shortage coming as investments, discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    The collapse of Saudi Arabia is inevitable
    http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

  2. Kenz300 on Tue, 6th Feb 2018 10:48 am 

    Go electric – leave the gas pump behind.

    Two-thirds of world’s new energy capacity in 2016 was renewable: IEA
    http://www.greencarreports.com/news/1113115_two-thirds-of-worlds-new-energy-capacity-in-2016-was-renewable-iea

  3. Boat on Tue, 6th Feb 2018 12:11 pm 

    The Saudi could cover the Russian and the rest of OPEC cuts if they wanted to. Their biggest allie has been Venz albeit because of an oil production crash.

  4. MASTERMIND on Tue, 6th Feb 2018 12:27 pm 

    Boat

    WORLD ECONOMIES IN TROUBLE: Middle East Oil Exports Lower Than 40 Years Ago
    https://srsroccoreport.com/world-economies-in-trouble-middle-east-oil-exports-lower-than-40-years-ago/

  5. Boat on Tue, 6th Feb 2018 12:52 pm 

    MM

    Oil is a global price. Which countries grow their oil consumption in volume the most? India and China. Which countries are growing fast? India and China. Where should you move to to get some learning? INDIA OR CHINA. Lol
    PS The globe as a whole is humming along nicely. Oil in importance and influence is set to drop. Oil is now only 37% of primary energy an dropping.

  6. MASTERMIND on Tue, 6th Feb 2018 1:00 pm 

    Boat

    UC Davis Study: It Will Take 131 Years to Replace Oil with Alternatives (Malyshkina, 2010)
    http://pubs.acs.org/doi/abs/10.1021/es100730q

    University of Chicago Study: predicts world economy unlikely to stop relying on fossil fuels (Covert, 2016)
    https://www.aeaweb.org/articles?id=10.1257/jep.30.1.117

    Solar and Wind produced less than one percent of total world energy in 2016 – IEA WEO 2017
    https://www.iea.org/publications/freepublications/publication/KeyWorld2017.pdf

    Fossil Fuel Share of Global Energy since 1990 – BP 2017
    https://imgur.com/k7VecMq

  7. Boat on Tue, 6th Feb 2018 1:24 pm 

    MM

    If you ever read all your links you would see all the disparity of all the different scenarios. Your science is not consistent at all. I still have no clue to what you believe other than posting a bunch of links of competing opinions and calling it science is good. Lol

  8. Anonymouse1 on Tue, 6th Feb 2018 2:29 pm 

    A sock, lecturing a retard. Good stuff. Boatietard definitely has no clue, proven time and time again. Still, it is mildly amusing to see him acknowledge his cluelessness openly. Now grab your crayons, your coloring book, and go watch some TV boatretard. 700 club, remember?

  9. Davy on Tue, 6th Feb 2018 3:00 pm 

    Hi mousie. Lol another dickhead Canadian slithers out to join his cousin. Yea, mousie, greggie is getting spanked and billyt is awol. The twink helping the gimp sounds like a winning combo.

  10. Anonymouse1 on Tue, 6th Feb 2018 3:14 pm 

    Heya dumbass. Is that your, ahem, synApsis, of the situation?

    You should answer as your sock once in a while, it might enhance your alt-personality disorder standing with, you know, the rest of the retards.

  11. Davy on Tue, 6th Feb 2018 3:18 pm 

    Mousie, we are going on two weeks since you said anything intelligent. Are you struggling to be relevant? Did you ever become an engineer. You once whined about those struggles. What a twink.

  12. MASTERMIND on Tue, 6th Feb 2018 9:36 pm 

    Boat

    You are obviously too dumb for science! Not surprising since you are from the imbread south!

  13. fmr-paultard on Tue, 6th Feb 2018 10:35 pm 

    ((muslimind)) you fear me when you should fear supertards. do you think it’s time to turn the table and take muslims for slaves? their religious texts says to kill or enslave us so why don’t we start?
    how should we breed muslims with muslims to create moar slaves?

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