Saudi Arabia’s crude oil production
Preliminary estimates suggest that Saudi Arabia produced more than 10 MMbpd (million barrels per day) of crude oil in January 2016. Saudi Arabia’s production peaked at 10.6 MMbpd in June 2015. Saudi Arabia is the largest crude oil exporter in the world. In the last three years, record production from the US caused turmoil in the oil market. So, the tussle for market share caused Russia, OPEC (Organization of the Petroleum Exporting Countries), and the US to produce oil at record levels. Read more about the US production and rigs in the next part of the series. Record production from Saudi Arabia and OPEC will continue to put pressure on the oil prices.
Saudi Arabia’s tussle for market share
Saudi Arabia’s state-owned oil producer, Saudi Aramco, is using all of the strategies in the book to defend its market share in the depressed energy market. Oil price wars led to discounting oil prices below the benchmark oil prices covered in the first part of the series. In the US, Saudi Arabia has been targeting large independent refiners like Valero Energy (VLO), Phillips 66 (PSX), and PBF Energy (PBF) for long-term strategic ties for long-term supply contracts. They’re also using historic ties, strategic marketing, and discounting oil prices for long-term strategic partnerships for their supplies.
Saudi Arabia has been using this strategy in China, South Korea, and Japan. Saudi Arabia is coping with depressed oil prices and building a sustainable future. It’s putting its competitors at risk.
Saudi Arabia’s direct competitors
Saudi Arabia’s economy depends on oil exports. So, it’s producing more oil to offset lower oil prices and defend its market share. It’s working to secure its future by driving away US shale oil producers. The US shale production has higher break-even costs and production costs. For more on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.
So, the tussle for market share will lead to more oil production. The crude oil grades produced by Saudi Arabia are also produced by Russia, Iran, and Iraq. So, a strategic tie for production cuts isn’t possible. Also, it’s difficult to regulate the collective production cuts. So, we could see the oil oversupply extend in 2016. Oil prices could be volatile.
The volatility in the market impacts US shale oil producers like Laredo Petroleum (LPI), Whiting Petroleum (WLL), and Marathon Oil (MRO). They also impact ETFs like the United States Oil Fund (USO) and the ProShares Ultra Crude Oil ETF (UCO).