Saudi Arabia, the world’s leading crude exporter, might be gearing up for a strategic move to regain its dominance over oil prices. In what could be seen as a bold play, the nation is considering a significant increase in oil supply, potentially reversing its current production restrictions. This insight was shared by energy market expert Paul Sankey from Sankey Research in a recent CNBC interview.
The discussion comes in the wake of the latest OPEC+ meeting, where members agreed on voluntary production cuts but stopped short of making concrete commitments. This uncertainty has led to a dip in oil prices, sparking speculation about Saudi Arabia’s next move.
Sankey highlighted the possibility of Saudi Arabia using its considerable capacity to increase output by an extra 2.5 million barrels per day. Currently, the OPEC leader is playing a balancing act, trying to buoy crude prices by limiting production. As part of this strategy, it recently extended a cut of 1 million barrels per day into the next quarter.
However, this wouldn’t be the first time Saudi Arabia has adopted a market-flushing strategy. In 2014, the country took the oil markets by surprise by drastically reducing crude prices from around $110 a barrel to $50. This tactic primarily targeted higher-cost producers, pushing them out of the market as oil extraction became financially unviable. With competitors sidelined, Saudi Arabia could continue production at lower prices due to its cost resilience, eventually regaining control over pricing.
Today, the United States’ burgeoning oil production poses a significant challenge to OPEC and Saudi Arabia. The US has been witnessing a robust increase in crude output, with monthly production reaching a record high of over 13.2 million barrels a day in September, as per Energy Information Administration data.
Sankey’s analysis suggests that Saudi Arabia might resort to a similar market-flushing strategy as seen in 2014 to counterbalance the impact of rising US production and reassert its influence over global oil prices. If this scenario unfolds, it could lead to significant shifts in the oil market, impacting producers and consumers alike. As the situation develops, industry watchers and investors are keenly observing Saudi Arabia’s next steps in this intricate game of oil market dynamics.