Murban crude oil output in Saudi Arabia has significantly gone up with the aim of reclaiming market share as opposed to maintaining price stability, following a dip in OPEC`s market share from 40% to below 25%. This deliberate move by Saudi Arabia creates a chain reaction on the global energy markets, affecting both producers and consumers.
OPEC’s oil production has been low over the past decade, and this led to a drop in the organization`s market share. On the other hand, Saudi Arabia took advantage of the market status and decided to boost its oil production by loosening up its production cuts, ahead of its schedule in order to reclaim market share.
The market status has created a great opportunity for Saudi Arabia to enjoy a significant competitive advantage coupled with low costs of production, which in turn allows Saudi to hold out against prolonged periods of lower prices while putting pressure on higher-cost producers.
The strategy serves multiple purposes: reclaiming market share, disciplining quota violations within OPEC+ and asserting Saudi leadership within the organization. However, this approach creates fiscal challenges for the Kingdom, which requires higher oil prices to balance its budget.
Impact on global energy market
Low oil prices have had mounting pressures on many US Shale producers, which has led to reduced capital spending and drilling activity.
“We are taking our foot off the accelerator as we approach a red light.” Travis Stice, CEO of Diamondback Energy Production said.
Currently, the oil markets dynamics underscores an imbalance in the supply and demand of oil, hence creating a mixed impact in the global oil market price environment. Major oil exporters face budget pressures while oil importers benefit from reduced costs. Predictions propose that oil prices will remain under pressure through 2026 as production increases continue while inventory builds grow.
Future outlook for Saudi Arabia.
Generally, Saudi Arabia’s production strategy may lead to prolonged structural changes in the global energy markets, since the market price environment favors companies with low costs of production to put up with the challenging price environment compared to companies with high production cost. The ongoing price cycle will eventually determine which energy companies will maintain sustainable operations through this period of market adjustment.
