Eurasia Review: Can Saudi Arabia Still Sway The Oil Market? – OpEd

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By Tsvetana Paraskova

Saudi Arabia, the world’s top oil exporter and OPEC’s largest producer, has influenced the oil market and oil flows since the middle of the 20th century.

Shortly after the 21st century began, one of Saudi Arabia’s key
customers made its first steps toward becoming one of the Kingdom’s main
competitors on the global oil market: the United States began fracking
for oil in the mid-2000s. By the end of the 2010s, the U.S. is now the
world’s biggest crude oil producer, having surpassed Russia and Saudi
Arabia to claim the crown.

Sure, Saudi Arabia is one of the most important factors in global crude
trade and oil market participants are lapping up every word and hint
from the top oil officials in the Kingdom.

But as the U.S. has started to rely on fewer imported barrels, Saudi
Arabia’s power to sway the market has diminished. Another large Saudi
customer, China, now has more leverage over Saudi Arabia’s oil flows,
Dafna Maor, a columnist for Israeli newspaper Haaretz, writes.

U.S. crude oil imports from all over the world have declined from their peak of 10.126 million bpd in 2005, while imports from Saudi Arabia have also been down in recent years, to average below 1 million bpd in 2017, for the first time since 2009, according to the latest EIA data. Meanwhile, U.S. production is breaking records,
despite a slowdown in shale growth in recent months as a result of the
40-percent oil price slump in the fourth quarter of 2018.

In recent years, the Saudis have had stiff competition in what is now
the world’s largest oil importing nation, China. In the past three
years, Saudi Arabia has lost its status of China’s number-one
supplier—to none other than its ally in the OPEC/non-OPEC production cut
deal, Russia.

Saudi Arabia is the world’s largest oil exporter, but its dominance over
the global oil market has started to crack in recent years. Now the
Kingdom influences the market and oil prices as much as (or probably
less than) the Permian basin in West Texas does, Haaretz’s Maor argues.

The Saudis don’t want to lose control over OPEC’s oil production
policies, which the cartel publicly says are always aimed at a “balanced
oil market”, while many OPEC members, including the de facto leader
Saudi Arabia, actually need oil prices at least as high as their
budget-balance needs. In Saudi Arabia’s case, this is around $80 a
barrel Brent Crude or slightly higher.

At the same time, Saudi Arabia claims it wants to diversify its economy away from over-reliance on oil.

As per OPEC figures,
the oil and gas sector generates around 50 percent of Saudi Arabia’s
gross domestic product (GDP), and accounts for some 70 percent of its
export earnings.

The so-called Vision 2030 by Crown Prince Mohammed bin Salman has grand
plans about billions upon billions of U.S. dollars in investments into
the Saudi economy and renewable energy. Ironically, the Kingdom relies
on proceeds from oil, including from the much-hyped but still-on-hold
listing of 5 percent in its oil giant Aramco, to fund the

Yet, until this transformation begins to take place, if at all, Saudi
Arabia is aggressively pursuing long-term downstream deals in the
world’s fastest-growing oil demand center, Asia, with the goal to lock
in future demand for its crude oil.

Aramco has signed in recent months a number of agreements in China to take part in refinery projects. One of the latest deals, buying a 9-percent stake
in Zhejiang Petrochemical’s 800,000-bpd integrated refinery and
petrochemical complex in Zhoushan, says that “Saudi Aramco’s involvement
in the project will come with a long-term crude supply agreement and
the ability to utilize Zhejiang Petrochemical’s large crude oil storage
facility to serve its customers in the Asian region.”

Despite plans to transform its economy from over-reliance on crude oil
and despite gradually losing its dominant position as the single biggest
oil price mover, Saudi Arabia is not willing to give up its
geopolitical and market power that comes with its current status of the
world’s largest oil exporter.


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