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Saudi Arabia’s Oil Supremacy Falters

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The Wall Street Journal

The world’s biggest crude exporter is rejiggering its long-held strategy of clinging to market share

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Saudi Arabia is losing its grip on big oil markets it once dominated amid a deep production cut that has reshaped global petroleum trade routes and benefited rivals like Iran, Russia and the U.S.

To stomach a steep production cut aimed at putting a floor under oil prices, the world’s biggest crude exporter is conceding ground to American shale producers and hastening a retreat from the U.S., people familiar with current Saudi policy said.

Saudi Arabia’s crude exports to the U.S. for the week ended March 10 fell by 426,000 barrels a day compared with the previous week, according to the latest U.S. data. That represents the sharpest weekly drop in the time since the Organization of the Petroleum Exporting Countries decided in late November to cut production to raise oil prices.

The drop was by design, the people said, as the kingdom is looking instead to Asia for growth.

But Saudi Arabia is falling behind Russia when it comes to supplying China, China’s General Administration of Customs data shows. China is one of the world’s fastest-growing major oil consumers.

Elsewhere, the Saudi oil machine has been outmaneuvered by Iran and Iraq among big European customers in France, Spain and Italy, according to data from the International Energy Agency.

The Saudi retreat from an all-out battle for these markets reflects the compromises the kingdom is now making to achieve a higher oil price, as it faces fiscal pressures from a burgeoning population and as the planned offering of its state oil company, Saudi Arabian Oil Co., or Saudi Aramco, nears.

“Saudi Arabia is under extraordinary pressure both internally and externally,” said Dr. Jean-Marc Rickli, head of risks analysis at the Geneva Centre for Security Policy.

For years, maintaining market share was a major priority for Saudi Arabia. In 2014, when the price of oil plunged, the Saudis opted against an OPEC output cut to avoid surrendering its share of key markets.

Now, that strategy has changed in ways that would have been unimaginable just a few years ago.

Since Saudi Arabia and OPEC decided to cut production last November, American shale companies have taken advantage of the resulting higher prices to launch a comeback, adding 412,000 barrels a day of new output, according to the U.S. Energy Information Administration. While some of that oil has gone to satisfy the U.S. market, American crude exports have surged to over 1 million barrels a day this year.

Saudi Arabia—which throttled output to record levels to compete with a flood of U.S. oil two years ago—is now pulling back amid the renewed onslaught. The kingdom has cut its production by nearly 800,000 barrels a day since October. That is 60% more than it promised as part of the OPEC deal and signals its seriousness about stabilizing the oil market.

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