Royal Oil
Royal Oil
Saudi Arabia is single-handed trying to balance the oil market and cutting staggering, crisis-level volumes of crude to get the job done.
This post on Saudi Arabia’s oil industry is the latest in a series of deep-dive posts on large oil producers, having previously covered Russia, Guyana, the US, Canada, and Mexico. Some upcoming countries of note that will receive a similar treatment include Brazil, Venezuela, Iran, Nigeria, and Libya.
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As of next week, Saudi Arabia will be withholding 2 MMbpd of crude from the market—more functional capacity than the rest of current OPEC+ cuts combined.
The Kingdom’s exceptional and unilateral production cuts will no-doubt tighten the physical oil market; the Saudis are excruciatingly precise in meeting their commitments and, not to mention, these production cuts are hitting just as Saudi domestic demand peaks through July.
As the now single-largest supply factor in the global oil market, the potential impact will almost certainly be widespread—Saudi Arabia exports a lot of oil to a lot of different places, including multiple crude grades (and a growing volume of refined products) to some of the world’s largest importers.
The Kingdom of Saudi Arabia has been making waves in the global oil market, increasingly trying to single-handedly tighten balances and press prices higher. After a series of OPEC+ cuts (in late fall and then early spring) meant to reverse slipping oil prices, Saudi Arabia took an unexpected and unusually unilateral position coming out of the latest OPEC+ meeting: as of July, Saudi Arabia will alone be withholding more demonstrable oil production capacity from the market than the rest of OPEC+ combined.
You see, the Kingdom holds tremendous sway over the global oil market. As both the largest crude exporter and reserve holder, it produces some of the lowest cost barrels on the planet. But even more importantly here, Saudi oil production is, arguably, the most flexible and unilaterally controlled source of crude, with state-owned Saudi Aramco holding a monopoly on the production of the Kingdom’s vast reserves. Given its massive geological capacity and tight control of production, Saudi Arabia holds, by far, the largest volume of spare production capacity. And with great power comes great influence: the Kingdom serves as the de facto head of OPEC—and by extension OPEC+—in a market increasingly defined by the producer group’s coordinated policy making.
Saudi Arabia brought this discretionary decision-making capacity to a head at the latest OPEC+ meeting where the Saudi Energy Minister announced a temporary—but open-ended—and unilateral 1 MMbpd production cut. Is the Kingdom stepping back into a lone swing producer role for the first time in decades? And what does it mean for Riyadh to be voluntarily producing so far beneath their production capacity for such an extended period?