Saudis still influence oil but repeat of 1973 can’t happen

DUE TO SHALE BOOM, US CURRENTLY PRODUCES MORE THAN HALF THE OIL IT CONSUMES

Saudi Arabia cannot repeat an oil embargo similar to that of 1973 as the US oil market fundamentally changed over the years due to shale oil revolution as well as the availability of alternative suppliers, analysts told Gulf News.

Tensions between Saudi Arabia and the US rose over the killing of Saudi journalist Jamal Khashoggi.

But analysts point out the oil market is fundamentally different from what it was during the 1973 Arab-led oil embargo in which Saudi Arabia and several regional allies squeezed supplies to the US and Europe in retaliation Ehsan Khoman, Head of Mena Research and Strategy at MUFG Bank Ltd said Saudi Arabia’s 7.1 million barrels per day of oil exports — the largest in the world provides the country a leading role in balancing global energy markets.

“The Saudi leadership will be cognisant not to use oil as a tool for foreign policy given it has built a long-standing reputation as one of the world’s most reliable oil producers.” for their support for Israel.

In 1973, the oil market mostly worked upon long-term contracts, however, currently it mostly utilises the spot market (a buyer can easily find oil from another country), Justin Dargin, an international energy expert from Oxford University, said. “Therefore, if Saudi Arabia imposed an oil embargo on the US, then the US would be able to source its oil from another country. Due to the shale oil production boom, the US currently produces more than half the oil it consumes.”

He however said the US is still dependent on Saudi oil because American refiners require medium and heavy grades of crude, while much of the US domestic production is quite light and does not meld well with the US Gulf Coast refineries.

The US imports approximately 876,000 barrels of oil per day from Saudi Arabia, the number two supplier after Canada, constituting about 10 to 11 per cent of US oil imports.

“The real influence that Saudi Arabia has on the global market is its spare capacity. This is the underlying belief that Saudi Arabia can quickly increase or decrease oil production. And, this factor allows Saudi Arabia to have a disproportionate influence over global oil prices. If Saudi Arabia were to drastically reduce oil production, it would undoubtedly cause an oil price shock, but at the same time it would spur a significant increase in investment to electric vehicles as well as into North American shale oil, both ultimately would hit the Saudi economy.”