Saudi Arabia’s New Crude Oil Policy Is Working As It Reclaims Market Share

Saudi Arabia’s New Crude Oil Policy Is Working As It Reclaims Market Share

Saudi Arabia led a shift by OPEC in November 2014 to defend market share against competing supplies, it is working

Top Crude Oil exporter Saudi Arabia is regaining market share following its Y 2014 decision to no longer support prices, but has a long way to go if it wants to go back to the larger marks of the past.

Saudi Arabia led a shift by the Organization of the Petroleum Exporting Countries (OPEC) in November 2014 to defend market share against competing supplies, rather than cut output to bolster up prices as they had done in the past.

Crude Oil is trading at 48 bbl, less than 50% its price as of June 2014. Riyadh says the strategy is working and OPEC officials point to stronger growth in world Crude Oil demand since the policy shift and to slower growth in non-OPEC supply.

Crude Oil exports from Saudi are on the rise from a 2014 low.

Figures from the US Energy Information Administration (EIA) and the IEA point to Saudi exports to major consumers in Asia and Europe reaching multi-year highs in 1-H of Y 2015.  YTD exports to the US have risen too, but are still under some pressure.

According to the data I have seen, Saudi Crude Oil exports amounted to around 8.1% of the global market since November 2014, after falling to 7.9% in Y 2014.

The comparison of Crude Oil exports with estimated global product demand is cut in stone, but it does provide indication of the changes in Saudi market share using publicly available and up to date information.

More than 50% of Saudi Crude Oil exports head to Asia and the EIA said on 9 September,  Saudi Arabia has maintained its Asian market share, exporting 4.4-M BPD to 7 big customers in Asia in 1-H of Y 2015.

Since Y 2007, this is the 2nd-highest Saudi exports in 1-H of the year to those countries. The high was in Y 2012 when 4.6-M BPD was exported in the frame.

More Saudi Crude Oil is heading to the United States although market share is still under pressure.

The United States imported 1.076-M BPD of Saudi Crude Oil in June according to EIA data, up from 788,000 BPD, the lowest since Y 2009, in January 2015. But average exports in 1-H are lower than a year ago, still the trend is up as the Saudi’s have planned.

Saudi officials had started thinking about the market share strategy in late Y 2013. The shift became public when OPEC in November 2014 refused to cut supplies despite falling prices.

It is noteworthy that Saudi Arabia is also exporting more Crude Oil to major consumers in Europe this year.

Shipments in 1-H of Y 2015 to European members of the Organization for Economic Cooperation and Development (OECD) were the highest since Y 2006 averaged at about 1.01-M BPD, according to International Energy Agency data.

Saudi export numbers to July show its Crude Oil exports have been above 7-M BPD in every month of Y 2015 except May. They fell below 7-M BPD in 7 months of Y 2014, having exceeded that rate in every month of Y’s 2012 and 2013.

Looking at demand 1st, and then looking at the supply, and how it has been affected since the Crude Oil price dive, That is  how you know the strategy is working.

Those Key factors are moving in favorable directions for Riyadh. The IEA expects world demand in Y 2015 to grow by 1.71-M BPD, a 5-year high, and together with other forecasters sees slower non-OPEC supply growth.

Saudi Arabia shows no sign of changing direction

The world’s largest exporter sees the strategy as long-term. Despite Y 2015′s success, Y 2016 looks to be challenging when sanctions are lifted on Iran and OPEC member Iraq boosts exports.

A good  test of Riyadh’s ability to reclaim market share may come in Y 2016.

Next year they will likely see a leveling off in domestic demand from their new refineries, but potentially also some extra competition from Iranian and Iraqi barrels that will drive prices further South, perhaps to 1998 marks before the balancing begins to happen.

Have a terrific week.

HeffX-LTN

Paul Ebeling

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