Crude Economics
Here’s Why Opec Is Anxious

The Organization of Petroleum Exporting Countries was formed largely to influence the market to favor its member petrostates, but the cartel has taken a new strategy recently. Crude prices are down more than 40 percent thanks to burgeoning global oil supplies and tepid demand in Europe and Asia. In the past, OPEC would cut production in times like these to set a price floor to the market, but this go around things are different, as Saudi Arabia has pushed through a strategy of inaction in an attempt to squeeze out non-OPEC producers (like the upstart, relatively high-cost American shale firms) for market share. As Bloomberg reports, OPEC has real cause for concern about its share of the global oil market:

The Organization of Petroleum Exporting Countries’ share of the global crude market dwindled to 41.8 percent in 2014, from 43.3 percent the previous year, according to the group’s Annual Statistical Bulletin. Libya accounted for more than half the output reduction. OPEC’s 12 members pumped an average of 30.68 million barrels a day last year, according to the report by the group’s Vienna-based secretariat.

The erosion of OPEC’s dominance by surging North American shale oil prompted the group to abandon its decades-long role of balancing world markets in November. Guided by Saudi Arabia, the organization chose instead to maintain output and pressure higher-cost rivals to curb their production in the face of a global glut. The kingdom completed the most wells last year since 2008, and the increase from 2013 was the biggest in a decade in percentage terms.

“The OPEC policy is probably the only option they have,” Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by e-mail. “U.S. shale is now the swing producer.”

OPEC’s market share in 2014 was its lowest since 2003. Its exports to Asia dropped more than half a million barrels per day from the previous year; North American exports were down 312,000 bpd. Saudi Arabia, OPEC’s largest supplier by volume, saw its own share in Asian markets drop significantly. Reuters reports:

Saudi Arabia lost its spot last month as India’s top oil supplier to Nigeria for the first time in at least four years, according to ship tracking data compiled by Reuters, as the world’s top crude exporter struggles to maintain market share in Asia.

The OPEC kingpin also fell behind Russia and Angola as the biggest crude supplier to China last month, official data showed this week.

Meanwhile, Iran is waiting in the wings, keen on boosting its own crude exports if it manages to sign a nuclear deal and Western sanctions are removed. Around the world, in every regional market, oil suppliers are engaged in a high-stakes fight to ply their wares, even if it means swallowing lower revenues as a result of bargain prices.

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