Two new stories emerge today that underline a new dominance that Saudi Arabia is creating in the Oil Industry.
It is well known that as the most influential oil producer in the World, the actions of Saudi Arabia have significant influence over the global crude oil price (crude oil is a stabilised product that is sold to refineries around the world to be turned into ‘refined’ products such as gasoline, kerosene, diesel etc.).
In recent months Saudi has been increasing its output (as previously reported here) and will probably exceed Russia in the first two quarters of this year to regain top spot as the World’s largest oil-producing nation.
As I have postulated before, the aim of flooding the market with cheaper oil is to retain (and increase) market share and this is spelled out in an article from Downstream Today that states
“Saudi Arabia expanded its share of China’s oil market last month, outpacing rival producers as they compete to meet record demand from the world’s biggest energy consumer.”
It goes on to say;
“China’s imports from the Middle East producer jumped 37 percent from a year earlier to the highest level since July 2013, according to customs data. The world’s biggest crude exporter was the No. 1 supplier to the Asian nation, accounting for 17.4 percent of its overseas purchases, up from 15.1 percent in March. The next three largest sellers — Russia, Iran and Angola — lost market share.”
So the plan is clearly working. But low oil prices whilst good for refiners (and to a lesser extent petrol consumers) are bad for oil producers. Saudi Arabia has already thought of this, and for some time has been building up refining capability in-Kingdom and out-of-Kingdom to take advantage as another article from Downstream Today outlines. I worked on the FEED phase of the Jizan refinery mentioned in the article – an amazing project and vision [VIDEO HERE];
“The kingdom now has stakes in more than 5 million barrels per day (bpd) of refining capacity, at home and abroad, landing it a place among the global leaders in making oil products. Its own target of 8-10 million bpd of refining firepower would eclipse even ExxonMobil.”
Why does this matter?
Well firstly, the statement that China is demanding more oil suggests an upturn in the global economy which is a good thing for all of us.
Secondly, additional refining capacity at state of the art (e.g. high efficiency) refineries located right next door to the oil sources will enable Saudi Arabia to make good margin on refined products during periods of low oil prices, which will enable them to sustain low crude oil prices for longer if they wish – this will hurt oil producers with a higher break-even price.
Finally, as well as flooding the market with cheap crude oil, they will also be able to supply cheap refined fuels across the Arab region and the wider world, putting further pressure on European refineries which are already struggling with high energy costs, aging plants and lack of investment. This in turn could lead to the closure of UK refineries, lost jobs and a greater reliance on imported fuels.
Governments across Europe (including our own) have failed to see this coming and continue to bicker over CO2, emissions, green renewables, taxation etc. Within the next 5 years it will become apparent to all that we are firmly in the grip of the Middle-East when it comes to our crude oil and refined fuels.