Saudi oil minister Ali Al Naimi confirmed that Crude production of Saudi Arabia to remain elevated for the year as it will try to claw as much market share as early as possible.

  • Crude production was reported to be 10.3 million barrels/day in March, up nearly 700,000 barrels/day from February. March’s figure represents highest monthly production in at least 40 months.
  • Saudis are clearly playing out their strategy to push prices low enough to make US and African crude producers out of the market. The presence of Saudis already seem to affecting market structure. West African crude are running large discounts to the oil benchmarks and rigs have fallen fast in US leading to bankruptcies for shale producers.
  • Saudi Arabia also seem to have increased domestic refining capacity, where it is using heavy grades of crude. It might even be planning for exports of finished products in future.

However resilience of shale oil production has surprised Middle East producers and it might take longer time for the strategy to work, as was originally anticipated.

Saudis also facing tough competition in retaining its market share, with oils travelling across globe. Asian and European buyers are looking into Latin America and West Africa’s discounted grades.

  • In early 2014, Saudi Arabia was driving 34% of its export towards US and China, that fallen to 26% as of latest data. That means this additional 8% will face high competition.
  • In US, which consumes heavy oil grade, Saudi crude is facing high competition from Canada and with Keystone XL pipeline in place it will intensify further.
  • In China, competition are intense as other light sweet grade producers like Iran, Iraq, and Russia all offering discounts for market share.

As a net effect, crude price to remain depressed for time being.

The material has been provided by InstaForex Company –