Saudi Arabia sets the stage for a high

stake market share battle – 09 March 2020

Refinitiv Oil Research

Benchmark crude prices went into a tailspin on Monday morning trade following OPEC
and its allies including Russia failing to agree on extending and deepening the output cut Ranjith Raja
which expires at the end of this month. Oil prices closed on Friday with Brent down by Oil Research Manager-
10.4% and WTI down by 7.8% w-o-w. As of 07:30 GMT this morning, Brent crude was at MENA
$33.93/MT, down by 25%, the largest single day drop since the Gulf War in 1991, while ranjith.raja@refinitiv.com
WTI was down by 26.8% at $30.22/MT. On market opening, prices dropped to an intra- +971 (0)44 536 215
day low of $31.29/MT for Brent and $27.37/MT for WTI.
Oil exports- A tale of 3 countries:
Saudi Arabia, Russia and USA together contribute more than 30% of global oil supply
and in terms of exports while Saudi Arabia and Russia have had significant control on
the market, USA backed by growing shale oil production has seen a surge in exports. In
2019, USA exported on an average, 24% of every barrel of oil produced. Russia on the
other hand exports on an average, 40% of its total crude oil production, while Saudi
Arabian seaborne exports have typically ranged around 70% of production although the
export ratio since 2015 has ranged from a minimum of 61% to a max of 78% of production
volumes. The reliance on oil exports and the resultant income is significant for Saudi and
Russia. Following Russia’s decision to not participate in further supply cuts, Saudi Arabia
has been reported to have announced to increase their production beyond 10 million bpd
for the month of April with a possibility to touch 11 million bpd. With the ensuing battle for
opening up the cap on production, other key OPEC producers who have been limited by
the quotas and compliance over the past three years are also likely to increase production
and cut prices in a bid to maintain market share.

Saudi Arabia Russia USA

(million bpd) (million bpd) (million bpd)
11.00 12.00 14.00
10.00 12.00
9.00 10.00
8.00 10.00
7.00 8.00
6.00 8.00
6.00
5.00 6.00
4.00 4.00
3.00 4.00
2.00 2.00 2.00
1.00
0.00 0.00 0.00
Jul-19

Jul-19

Nov-19
Jan-19

Jun-19

Nov-19
Dec-19

Jan-19

Jun-19

Dec-19
Apr-19

Oct-19

Apr-19

Oct-19
Feb-19
Mar-19

May-19

Aug-19
Sep-19

Feb-19
Mar-19

May-19

Aug-19
Sep-19

Production Exports Production Exports Production Exports

Subscribe to Refinitiv Oil Research reports here.

Saudi Arabia sets the stage for a high
stake market share battle – 09 March 2020
Refinitiv Oil Research

Key Demand Centres:

Top importers of Saudi crude- 2019 Top importers of US crude- 2019

15%
23%
28%

10%

49%

9%
15%
10%
9%
8%
12% 12% South Korea Canada United Kingdom
China Japan India South Korea Egypt Others
India Netherlands Others

Top importers of Russian crude-

2019 (seaborne)
13%

11%

50%

11%

8%
7%
China Italy Netherlands South Korea Turkey Others

A scenario analysis of key Middle Eastern exporters:

Besides Saudi Arabia - Iraq, UAE and Kuwait are the three key exporters from the Middle East who have spare capacity
and the potential to ramp up production when the supply cut agreement ends in March. Of these three countries, Iraq
has the least spare capacity and has been prone to internal conflicts which reduces the reliability of spare capacity, while
Kuwait and the UAE can be expected to ramp up production with a high degree of confidence. It may be noted that
Kuwait and Saudi Arabia have also restarted production from the Neutral Zone area in February which is expected to
have the potential to reach 500 kbpd by the end of this year and could cater to refineries that have specific demand for
heavy sour crude oil. Refinitiv Oil Research has analysed the potential increase in exports that could be added to the
market based on three scenarios – (i) Low Case: Lowest exports to production ratio since 2015; (ii) Base Case: Exports
to production ratio since 2019; (iii) High Case: Highest exports to production ratio since 2015.

Follow us! @RefinitivEnergy Join the conversation!

Saudi Arabia sets the stage for a high
stake market share battle – 09 March 2020
Refinitiv Oil Research

Exports increase Exports increase Exports increase

Oil production
Low case Base case High case
increase (million bpd)
IRAQ (million bpd) (million bpd) (million bpd)
0.10 0.07 0.08 0.09
0.20 0.13 0.16 0.19
Exports increase Exports increase Exports increase
Oil production
Low case Base case High case
increase (million bpd)
(million bpd) (million bpd) (million bpd)
KUWAIT 0.25 0.16 0.19 0.22
0.35 0.22 0.26 0.31
0.50 0.31 0.38 0.44
0.75 0.47 0.56 0.66
Exports increase Exports increase Exports increase
Oil production
Low case Base case High case
increase (million bpd)
(million bpd) (million bpd) (million bpd)
UAE
0.25 0.18 0.24 0.29
0.35 0.25 0.33 0.40
0.50 0.36 0.47 0.57

Other players who could add more volumes:

Libya, Iran and Venezuela were exempted from the earlier supply cuts on account of struggling production and exports,
sanctions and internal strife. While Iran and Venezuela are under sanctions, Refinitiv Oil Research does not foresee an
immediate reversal on these decisions and thereby little or no possibility of a ramp in exports from these countries. Libya
on the other hand has seen exports dropping in February, largely on account its key export terminals being blocked by
rebel forces. The exports from the country have fallen by nearly 700,000 bpd from January levels. This is a potential
volume that can be brought back to the market should the disruptions end, and the rival factions come to an agreement.
Impact on pricing:
With demand remaining uncertain considering the economic impact caused by the coronavirus, any significant increase
in supply would mean producers have to compete amongst each other to retain/increase market share. This has
historically led to price cuts and the first semblance of price cuts returning to the market was witnessed over the weekend
when Saudi Arabia cut the Official Selling Prices (OSP) for April sales of crude oil to all key demand markets in the range
of $5-8/bbl. This has already led to reported interest from a few Asian buyers who are looking at the possibility of
increasing sourcing of crude oil from the region as prices are set to fall. Russia, with pipeline access to China and USA
with the advantage of trade deal negotiations have a competitive advantage for supply into the key Chinese market and
hence Middle Eastern producers would need to be extremely competitive on their pricing while also focussing on other
key Asian consumers. Other regional producers are expected to follow suit on their pricing and target market.
Arab Light OSP to Asia - $/bbl
6
4
2
0
-2
-4
Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19
Feb-10

Feb-11

Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

Feb-19

Feb-20
Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19

Follow us! @RefinitivEnergy Join the conversation!

Saudi Arabia sets the stage for a high
stake market share battle – 09 March 2020
Refinitiv Oil Research

Refinitiv Oil Research MENA

Ranjith Raja – Oil Research Manager
Ranjith.Raja@refinitiv.com
+971 (0)44 536 215

Sudharsan Sarathy – Senior Analyst, Oil Research

Sudharsan.Sarathy@refinitiv.com
+971 (0)44 536 719

Rakesh Sharma – Senior Analyst, Oil Research

R.Sharma@refinitiv.com
+971 (0)44 536 543

Mohammed Yasser - Analyst, Oil Research

Mohammed.Yasser@refinitiv.com
+971 (0) 44 536 709

Follow us! @RefinitivEnergy Join the conversation!