- Saudi Arabia may wage a “market share war” against the US and flood oil markets with supply, according to energy expert Paul Sankey.
- This strategy would reverse Riyadh’s previous efforts to curb production to boost oil prices.
- Sankey believes the focus would be on targeting US shale producers, particularly those in the Permian Basin.
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Saudi Arabia is struggling to boost oil prices through production cuts and may soon change tactics to target the US, says energy expert Paul Sankey.
In an interview with Business Insider, Sankey suggests that Saudi Arabia may increase production to flood the market with supply in the first half of 2024, aiming to impact US shale producers rather than emerging producers in other countries.
Sankey states, “You’ve got to attack the guy that’s making the marginal decision to drill or not — and that guy is Mr. Permian Basin,” referring to the US shale epicenter.
He further adds, “I think to be specific, it’s a market share war.”
Saudi Arabia is currently producing about 2.5 million barrels a day below its maximum capacity. If the country follows through with additional supplies that cause crude prices to drop, the goal would be to make the US industry unprofitable and potentially bankrupt, explains Sankey. This strategy has been used by Riyadh in the past to regain control over oil prices.
The current situation is similar to previous episodes, according to Sankey. Other OPEC countries are not providing enough support, with countries like the UAE increasing oil production and Iran impacting Saudi Arabia’s share of Chinese crude oil imports. Additionally, there is weakening demand, as seen during the Covid pandemic.
“In all three instances you’ve had the biggest problem, arguably, which is that the US is just making highs and new highs and even further highs in terms of its own production,” Sankey said.
US crude production has significantly increased this year, reaching a record high of 13.2 million barrels a day, according to the Energy Information Administration.
Meanwhile, global energy markets doubt that OPEC+ is serious about its latest production cut pledges. After the recent OPEC meeting, where members pledged to extend cuts, oil prices fell.
On Monday, the Saudi energy minister indicated that production cuts may continue past the first quarter. However, oil prices continued to drop. Sankey did not comment on whether he has heard about plans to increase production from Saudi officials, but he believes they will have to make a decision if the market weakens further.