Has Riyadh refused to be on oil ‘price war’ path?

Has Riyadh refused to be on oil ‘price war’ path?

Saudi Arabia has decided to abandon its strategy for growth in oil exports to Asian markets and it is is gradually giving opportunities to its competitors for further increase in prices. It follows from the data on the import of hydrocarbons and the major countries of South East Asia.

During the first five months of the year (from January to May) import of Saudi oil to China is  amounted to 1.05 million barrels a day. An increase over the previous year by 3.9%. In general, China's oil imports rose by 16.5% during this period. In January-May of the current year, Russia has ‘overtaken’ Saudi Arabia in the Chinese market, reaching first place in oil supplies to China and increasing their volume by 42% in comparison with the last year, RBC reports with reference to Reuters.

A similar situation develops in India, however, Riyadh’s competitor is not Russia, but Iran and Iraq there.

In Japan, Saudi Arabia continues to be the leading supplier with increased shipments by 12.6%. Iraq has also increased the supply of oil to Japan by 51%, although in real terms, this volume is not significant, as it is less than 72,000 barrels a day.

"In spite of the overproduction of oil and the low prices, attention is focused on such countries as Saudi Arabia because of its strategic importance. It is expected that their acts will return the balance of supply and demand as soon as the market conditions improve," the head of the Ministry of Energy of Saudi Arabia Khalid al-Falih reported last week.

Reuters analysts consider that these data indicate that Saudi Arabia has already begun preparations for the rebalancing of markets, abandoning the previous plan to maintain their market share at any cost. 

"The situation around the minimum price may be indicative of a paradigm shift in Riyadh: now they are even willing to give up a small piece of the market for competitors, as they think that the market is already on its way to the balance, and oil prices will soon significantly increase," the agency informs.

Deputy director at the Institute of Energy and Finance Aleksey Belogoryev noted in a conversation with a ‘Vestnik Kavkaza’ correspondent, saying that there is no visible changes in the strategy of Saudi Arabia. 

"In my opinion, this strategy won’t change in the next 2-3 years. Riyadh is quite satisfied with the current rise in prices. The changes that may be in the export are of opportunistic nature and they are not associated with any strategic decisions,’’ the expert expressed his confidence.

The Leading analyst at the National Energy Security Fund, the teacher at the Financial University under the Government of the Russian Federation Igor Yushkov on the contrary agreed with the Reuters analysts.

"Indeed, the strategy of Saudi Arabia and the understanding of what to do is changing. Initially they had the position to extract the maximum amount of oil in order to drop the price of oil and a get rid of inefficient producers. "They did in 2014 and 2015, but since late last year Riyadh also changed this position after much reserves were spent during 2015,’’ the expert said.


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