Russia-America rivalry spreads to the oil market
A report by the International Energy Agency (IEA) has revealed an increase in US oil production raising questions about the share of OPEC and non-OPEC countries in the global oil market after they decreased their production. The 24 OPEC and non-OPEC countries, headed by the biggest producers Saudi Arabia and Russia, had decided to cut down production by 1.8 million barrels per day until the end of 2018 due to a surplus in oil supply.
US shale oil disrupts price
According to the IEA, the rapid rise of US shale oil and increased production in Brazil and Canada will be able to accommodate growing demand for oil by 2020. The United States under the leadership of George Bush and Barack Obama expedited the process of transforming the country from being the largest oil importer into an important and independent producer. When Trump was elected president, he ordered issuing licenses and removing obstacles that hindered exploring and producing more shale oil. The United States is now exporting not only gas but also oil.
Russian companies are worried that US oil is taking away their share of the market
This situation may compel OPEC members and non-OPEC states to extend reduction in oil production to beyond 2018. Current OPEC president Suhail Al Mazroui said in Houston that the group has not ruled out if it is going to continue implementing this policy even after 2018. Ever since the IEA published its report on US oil production, the price of Brent crude has dropped to below $64 after having reached $71 in January. There is no doubt that all OPEC countries and most of the other non-OPEC countries do not want to see a drop in oil prices because it is not in their interest.
A number of Russian companies are worried that US oil is taking away their share of the market, and they may not want to continue to reduce their share of oil in the market after 2018 in favor of the US. It is premature to predict what the 24 OPEC and non-OPEC countries will decide during their June meeting in Vienna on the sidelines of the OPEC conference because it will have a bearing on the evolution of the price of oil, which can rise and drop for reasons other than market fundamentals, like geopolitical factors or even investor speculation.
Generally, the US growth factor can pose a challenge for major producers, including Russia and Saudi Arabia. For years, Saudi Arabia has increased its oil exports to countries in the east – such as to China, India and Japan. In order to save its oil for export, Saudi Aramco and Russia’s Novatek have signed a memorandum of understanding for future investment in an LNG plant. This will enable Saudi Arabia to acquire Russian natural gas to supply electricity. Saudi Arabia wants to preserve its market share and cultivate policies in this regard as for instance there are Crown Prince Mohammed bin Salman’s plans and projects to diversify the kingdom’s economy so that it is not dependent on oil and its prices in the future.
The Russian-Saudi cooperation in oil and gas is in the interest of the two countries. But Russia’s current policy as an ally to Iran in Syria and its determination to defend Iran is echoed in Russia’s talks with Western leaders and ministers. This puts a question mark over the prospect of this cooperation. In his meeting with his French counterpart Jean-Yves Le Drian, Russian Foreign Minister Sergei Lavrov considered Iran a stabilizing factor in Syria, Lebanon and the Middle East. This raises questions about the future of sustaining Russia’s interests with Gulf states if it maintains the same policies.