(Repeats June 20 column with no changes. John Kemp is a Reuters
market analyst. The views expressed are his own)
* Chartbook: https://tmsnrt.rs/2RmcGkY
By John Kemp
LONDON, June 20 (Reuters) - The Organisation of the
Petroleum Exporting Countries' share of the global oil market is
progressively eroding as it attempts to keep prices artificially
high by restricting its own production.
OPEC's share of global production fell to just 41.5% last
year, the lowest since 2003, according to figures contained in
the latest edition of the BP Statistical Review of World Energy,
published on June 11.
OPEC's share will almost certainly shrink even further this
year, to the lowest level since 2002, and before that the early
1990s, given the organisation's output cuts and U.S. sanctions
on Iran and Venezuela.
The organisation's members progressively increased their
market share between 2002 and 2008, but since then, their share
has been on a downward trend, which shows no sign of reversing
(https://tmsnrt.rs/2RmcGkY).
OPEC's combined production was up by just 2 million barrels
per day (5%) in 2018 compared with 2008, while non-OPEC output
climbed by 9.6 million bpd (29%) in the same period.
Saudi Arabia, OPEC's de facto leader, increased production
by 1.6 million bpd (15%), while Iraq boosted output by 2.2
million bpd (90%).
Outside OPEC, however, Canada raised output by 2 million bpd
(62%), and the United States boosted output by 8.5 million bpd
(126%), mostly as a result of increased flows from onshore shale
fields.
Saudi Arabia's share of global output has remained stable
since the 1990s, but many of the organisation's other members
have seen their share erode as a result of war, sanctions,
unrest and mismanagement.
TWIN OBJECTIVES
Saudi Arabia emerged as the undisputed leader of OPEC in the
1990s after war and sanctions crippled production in rivals Iran
and Iraq, and corruption, mismanagement and unrest hit output
from Nigeria, Libya and Venezuela.
Saudi Arabia's objective has been to maximise short-term
export revenue, subject to the need not to jeopardise its
long-term market position and protect its diplomatic
relationship with the United States.
In practice, the kingdom has alternated between periods when
it prioritised the defence of prices (at the expense of market
share) and protecting market share (at the expense of prices).
In recent years, the kingdom's dilemma has sometimes been
eased when U.S. sanctions have restricted exports from its
regional rival Iran (and more recently from Venezuela).
Sanctions on rival producers have allowed the kingdom to
protect prices without sacrificing too much market share, so
they serve both commercial and diplomatic objectives.
But the limits of this strategy are now becoming evident
with prices struggling to rise even as Iran and Venezuela have
been pushed almost entirely out of the market.
Long-term trends in both oil prices and market share are
adverse to the kingdom, complicating the government's ambitious
goals for social and economic transformation.
U.S. SHALE BARRELS
U.S. shale firms and other non-OPEC producers, including the
major international oil companies, have been the biggest
beneficiaries of Saudi Arabia's and OPEC's efforts to restrict
production and lift prices.
By keeping prices higher than they would been otherwise,
Saudi Arabia's strategy of restricting output underpinned the
first shale boom (2011-2014) and the second one (2017-2018) in
the United States.
In 2018, Saudi Arabia continued to restrict output during
the first six months, and ultimately raised production by just
400,000 bpd for the full year, compared with a U.S. increase of
2.2 million bpd, according to BP.
By contrast, in 2015/16, the most recent instance when Saudi
Arabia abandoned its price-defence strategy in favour of market
share, the kingdom's output rose by 400,000 bpd while U.S. shale
output sank by 433,000 bpd.
In the medium term, the kingdom's strategy of restricting
output to prop up prices is unsustainable; it is conceding too
much market share to shale and other non-OPEC producers.
Russia, which aided Saudi Arabia's efforts to restrict
supplies in 2017/18 and again in 2018/19, has already expressed
concern about the long-term consequences of high prices and
eroding market share.
In the short term, the kingdom's policymakers are focused on
averting a renewed build up in inventories and slump in prices
as global growth and oil demand slows.
In the medium term, however, Saudi Arabia will have to
moderate its price goals and refocus on market share if it is to
maintain its leadership role.
Related columns:
- Saudi Arabia waits for higher spot prices before raising
oil exports (Reuters, May 21) - Saudi Arabia resumes familiar role as swing producer
(Reuters, Feb. 20) (Editing by David Evans)