Living the Saudi Dream

Saudi Arabia wants it all: to salvage OPEC, achieve income diversification and industrialization, and preserve its market share in crude oil, petroleum products, petrochemicals, and natural gas liquids. Whether the Saudis succeed will be determined largely by the shale-energy industry in the US.

IRVING, TEXAS – Saudi Arabia wants it all: to salvage OPEC, achieve income diversification and industrialization, and preserve its market share in crude oil, petroleum products, petrochemicals, and natural gas liquids (NGLs). Whether the Saudis succeed will be determined largely by the shale-energy industry in the United States.

The US shale revolution divided OPEC according to the quality of its members' crude oil. Exporters of light sweet crude – such as Algeria, Angola, and Nigeria – lost nearly all of their market share in the US, while exporters of sour or heavier crude, including Saudi Arabia and Kuwait, have lost little.

Because almost all crude oil produced by the Gulf States is sour, and most of the global surplus is sweet, any production cut by Saudi Arabia and its neighbors would not drive prices back up and rebalance the oil market. The only way to do that – and prevent an OPEC breakup – would be to reduce the production of light sweet crude, including by US producers, which would thus lose market share. If this occurred, oil prices could be expected to rise again relatively quickly.

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