Is Saudi Arabia Helping US Shale Oil Producers?
Saudi Arabia’s crude oil production
Saudi Arabia is one of the largest oil producers in the world. Saudi Arabia is also OPEC’s largest oil producer. The EIA estimates that Saudi Arabia’s crude oil production decreased by 20,000 bpd (barrels per day) to 10,070,000 bpd in February 2018—compared to the previous month. However, production increased by 70,000 bpd or 0.7% year-over-year.
Saudi Arabia’s production has declined by 560,000 bpd or 5.3% from the record high in July 2016. Production dropped due to ongoing supply cuts. Brent and WTI oil prices have risen ~45% since June 21, 2017, partly due to supply cuts.
The United States Brent Oil ETF (BNO) tracks Brent crude oil futures. The United States Oil ETF (USO) follows US crude oil futures. BNO and USO have risen ~50% and ~42%, respectively, since June 21, 2017.
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Saudi Arabia’s role in helping oil prices
On February 14, 2018, Saudi Arabia’s energy minister said that ongoing production cuts would continue until December 2018. The comment supported oil prices on February 14, 2018. Saudi Arabia needs higher oil prices because the country’s economy mainly depends on oil export revenue. Higher oil prices will be crucial to help transform Saudi Arabia’s economy.
Saudi Arabia needs Brent crude oil prices at ~$70 per barrel in 2018 to meet the country’s ambitious economic projects and to support Saudi Aramco’s initial public offering. Saudi Aramco is Saudi Arabia’s state-owned oil company.
Consequences of higher crude oil prices
Brent and WTI oil prices have risen ~45% since June 21, 2017. Higher crude oil prices could increase US drilling activity and production. Higher US production could increase US crude oil exports. US crude oil exports have doubled since last year. US oil exports to Asia have been rising. Asia is a big market for Russia and Saudi Arabia. The rise in US crude oil exports to Asia could dent Saudi Arabia’s market share in Asia. The rise in US oil production and exports could also pressure oil prices.
Russia and Saudi Arabia have shown interest in extending production cuts into 2019, which could support crude oil prices in 2019.
Next, we’ll discuss Iran’s crude oil production.