Oil in Global Economy Series: Saudi Games Not Working

Oil in Global Economy Series: Saudi Games Not Working

29 March 2016, 14:01
Roberto Jacobs

Oil in Global Economy Series: Saudi Games Not Working

After more than a year into deployment, cracks are now plenty to conclude that Saudi Arabia’s strategy to keep production high, drive out high cost producers and increase/retain its market share has failed. Instead its economy is the one facing deficit crisis. This year Saudi Arabia is going to face a budget deficit close to 16% of GDP and its banks are gasping for fresh deposits. Only bright light for Saudi Arabia is its FX reserve, which is still very high above $650 billion.

Results of its strategy is much worse than its state of the economy.

Thanks to the high production strategy, global oil price despite recent 50% rally is down more than 60% from its 2014 peak. However that hasn’t done much to push high cost producers from the market, especially in shale oil space. Many smaller shale oil producer have gone and still going bankrupt but that hasn’t led to any major production drop. Bigger rivals are just replacing them. U.S. production is still close 2014 peak.

Now, latest import data analysis by consulting form FGE indicate that increase in market share in 2015 has only been temporary and Saudi Arabia has lost ground to rivals in key export countries including China and U.S. Saudi Arabia lost its market share in 9 out of 15 top markets.

In China it lost Grounds to Russia and saw its market share drop to 15.4% in 2015 from 19.4% in 2013.

South Africa was lost to Nigeria and Angola, where its market share dropped from 53% to just 22%.

U.S. share dropped from 17.1% to 14.4%, largely due to shale oil.

Biggest concern for the Saudi’s likely to be China, which is over the next decades likely to replace U.S. as biggest consumer of crude oil.

All however has not been lost, it gained share in some prominent markets like Japan and India.

The material has been provided by InstaForex Company - www.instaforex.com

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