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Commodities

Saudi Arabia cedes crown as top oil exporter in key markets

Production cuts take toll on market share in China, India

TOKYO -- Saudi Arabia lost its spot as the biggest supplier of crude oil to China and India in 2016 as stiff price competition from Russia and Iraq cut into its market share.

Saudi export volume to the top 10 markets reached 7.61 million barrels a day last year, climbing 3% from 2015 amid global demand growth, based on data from Japan's Ministry of Economy, Trade and Industry and British market research company FGE. However, the struggles facing OPEC's largest producer can be seen in country-by-country data. For example, its share of the Chinese market slipped to 13.6% in 2016, down 1.7 points from a year earlier. In India, its market share dipped 0.2 point to 19.5%.

These figures mean Saudi Arabia is not the market share leader in these countries for the first time since comparable data has been available, dating back to 2007 for China and 2013 for India.

In China, the Saudis have been supplanted by Russia, whose market share rose 1.3 points to 13.9%. Russia has an advantage in geographical proximity, which results in lower shipping costs. Strong buying interest from the Chinese side, particularly by independent refineries, has added to Russia's momentum.

In India, Iraq has risen to the top, its market share climbing 4.1 points from the prior year to 20.2% in 2016. FGE's James Davis points out that Iraq has continued to ramp up output in order to feed demand in China and India.

A surge by Iran has also been noticeable following the lifting of economic sanctions against that country in January 2016. Iran has grown its market share in Japan, India, South Korea and Europe.

Plagued by fiscal deficits, Saudi Arabia shifted its focus from emphasizing market share to boosting prices by cutting production. In December 2016, a consortium of OPEC member and nonmember states agreed to lower output, while Iran was effectively exempted. The production cuts took effect in January, with OPEC members achieving 90% of their targeted cuts -- the bulk of those thought to have been made by Saudi Arabia.

On the other hand, foreign media have reported that non-OPEC states achieved only 60% of their targeted cuts. This has brought echoes of the 1980s, when the Saudis lost market share after slashing output in a bid to lift prices.

With production cuts set to continue through June, Saudi Arabia's market share could erode further in 2017. Some in the industry think this could lead the Saudis to refocus on market share, spurring a plunge in crude oil prices.

(Nikkei)

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