It would appear, now that Saudi Arabia has walked away from its role as the world’s largest oil producer, U.S. output will play a far more significant role in determining oil prices.
Since July 2014 and the sudden plunge in oil prices from approximately $105 to $45 per barrel, Saudi Arabia decided to chase market share, rather than serve in its traditional role as the regulator of oil prices, through the Organization of the Petroleum Exporting Countries (OPEC). This decision has since precipitated long term changes across the global crude oil market.
The output of the U.S now rather than Saudi producers is now significantly more influential in determining future oil prices.
Regarding demand:
Sales of transport fuels have exceeded all expectations this year leading many to establish that oil prices are well on the mend.
Recently Gasoline consumption has also bounced far higher, with U.S. drivers joining those in India,Indonesia and China in driving more often, and in some cases in less fuel efficient cars. Diesel for goods-laden trucks and jet fuel has also been in higher demand.
Regarding Supply:
Saudi Arabia, after decades of willingness to export less to control prices, decided instead to sell as much as it could. That decision, added to the supply glut U.S. production helped create, triggered last year’s bear market in oil prices. At times this year, production in Saudi Arabia has surpassed 10 million barrels per day, touching record levels. Other OPEC members have followed, according to data from the International Energy Agency (IEA).
This has now allowed the U.S. to leapfrog Russia and Saudi Arabia in oil production and therefore also increased US influence. Without a high-output market willing to step in and act as the swing producer, as Saudi Arabia once did, market forces are now in far more control.
When prices fall, producers with higher costs are likely to minimise operations, balancing supply and demand rather than relying on the Saudis to do so. That is what is currently occurring. Drilling in the U.S. has declined in reaction to falling oil prices. The U.S. oil-rig count rose by 12 to 640 in the latest week, breaking 29 straight weeks of decline.
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