29 Mar 2024
Tuesday 2 February 2016 - 13:17
Story Code : 199781

Saudi Arabia still reluctant to cut oil output, fears losing market share

Despite news of a possible OPEC meeting to stem plunging prices and curb production, the cartel remains reluctant to cut oil output, unwilling to loose markets to non-OPEC members and allowing the US shale gas come back and re-gain the ground, analysts told Sputnik.





MOSCOW (Sputnik) Saudi Arabia, the main OPEC producer, is reluctant tosacrifice market share bycurbing output unless a broad-based production quote is inplace, according toexperts.
"Nothing will happen withoutSaudi Arabia and they have been silent. Its tricky asIran will want tocontinue ramping upproduction that it has lost duringsanctions and any OPEC cut will mean losing market share tonon-OPEC producers who dont agree tocooperate. So it would need a really broad consensus and that would also assume producers sticking toany quotas that are reintroduced," Paul Hickin, oil analyst atthe energy and metal information agency Platts, told Sputnik.




OPEC has so far failed toact onexpectations ofa meeting onstemming plunging prices and curbing output. Despite numerous announcements byOPEC and non-OPEC oil producing countries' officials regarding a possible meeting asearly asin February, the organization did not table a meeting. The cartel's largest producer, Saudi Arabia, rejected claims ofa proposed five percent production cut, failing torespond toRussian Energy Minister Alexander Novak's statement onRussia's readiness tocut production alongsideOPEC member states.

The broad-based consensus necessary toconvince Saudi Arabia toa production cut remains hard toenvision, given the country's rivalry withnon-OPEC countries, such asthe United States, Iran and Russia, according toJustin Dargin, an energy and Middle East scholar atthe University ofOxford.
"This is not necessarily a new strategy bySaudi Arabia. If we recall, inthe mid1980s, Saudi Arabia unleashed its production potential and there was a significant price decline aswell. But, what is does seem toshow is that Saudi Arabia is much more concerned aboutits own domestic economic health, inthe long term, rather thanits traditional role asglobal oil price stabilizer," Dargin said.


 

With the United States boosting oil production byover 50 percent between2005 and 2013, the country increased its market share inthe global oil market fromaround seven percent in2010 to12 percent by2014, according toUS Energy Information Agency data. This was significantly higher thanSaudi Arabia's increase from12 percent to13 percent overthe same period. OPEC's share, excluding Saudi Arabia, decreased from31 percent to28 percent overthe same years. Much ofthe US market share increase has been driven byshale oil production, which has taken a hit duringthe recent price slump.

Despite a significant number ofclosures and job redundancies inthe US oil sector, production has remained steady, Dargin said. Larger companies remained inbusiness byconsolidating and focusing onprofitable wells, while smaller companies filed forbankruptcy, he said, stressing that a continued slump will put pressure even onlarger companies tosuspend operations. Higher prices, onthe other hand, will fuel investment inthe sector and a restart ofshale production.

Iran will eventually also favor higher oil prices, he added.
"[Iran's] oil was basically artificially shut outof the global market. So, even atsuch a low price, Iran's economic prospects are much better selling its excess oil, atleast forthe short term, thanit was before. But, even Iran, once it offloads its approximately 50 million barrels held instorage, would want a better price forits oil," Dargin said.


 

According toHickin, "Iran was a big supplier toEurope beforesanctions and Europe likes the sour crude Iran has tooffer."

Oil prices again began reacting tothe prospects ofprolonged overcapacity. After staging an almost two-week long rally, oil prices tended downwards inMonday's afternoon trading. WTI crude showed the largest decline ofalmost six percent, falling froma morning peak, while Brent peaked atalmost $36 per barrel aroundnoon beforeplunging rapidly tonearly $34 per barrel by17:30 GMT.
By Sputnik
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