Before it began its precipitous decline in the second half of 2014, oil prices were trading well above $100 per barrel. In November of that year—just before OPEC delegates came together for their semiannual meeting—Brent crude was still trading above $80 per barrel. But when the petrostate cartel emerged from that summit without a plan to restrict production, prices began to tumble in earnest, closing out the year below $60.
At the time, many analysts were surprised by OPEC’s inaction, but it quickly became clear that Saudi Arabia—realistically the only member capable of cutting production enough to really affect prices—was unwilling to dial back its own output for the sake of its fellow producers’ greater good. Instead, Riyadh chose to protect its market share and keep its output high, hoping that upstart American shale producers (whose operations, it must be said, are relatively expensive) would be forced by bearish market conditions into cutting back their production, and in so doing would become the world’s de facto new swing producer.
But thanks to the innovative efforts of the shale industry, U.S. production hasn’t fallen off a cliff, and the market remains oversupplied. Brent crude is trading today just above $40 per barrel, and the prospects for a sustained price rebound seem dim. So has the trade-off—accepting bargain crude in exchange for maintaining their share of the crowded market—been worth it for the Saudis? Not according to new research. The FT reports:
[Data from the energy consulting firm FGE] shows Saudi Arabia’s share of total Chinese oil imports fell from more than 19 per cent in 2013 to almost 15 per cent in 2015, because of increased supplies from Russia. Saudi Arabia’s share of South African imports dropped sharply during this period, from almost 53 per cent to 22 per cent, as Nigeria and Angola increased their shipments.
Meanwhile, the US shale oil boom reduced the country’s need to buy crude from overseas. Saudi Arabia’s share of US imports fell from 17 per cent to almost 14 per cent between 2013 and 2015.
Over the three years Saudi Arabia also lost ground in South Korea, Thailand, Taiwan and several western European countries.
It should be noted that the Saudis slightly increased their share of the global market from 7.9 percent in 2014 to 8.1 percent in 2015, but the fact that it’s losing out to other producers in some of its most important markets will be keeping Saudi Aramco executives awake at night.
Keep in mind, too, that Riyadh has paid a very high price for these shifts in market share. In this context, it’s easier to understand the timing of Saudi Arabia’s recent decision to start working with Russia, Venezuela, and Qatar to concoct a plan to freeze production at current levels.