THE urge to coordinate and the push to elbow out competitors continue to be the hallmarks of the emerging global crude equation.
On one end there is an urge to promote coordination between crude producers so as to stabilize the markets and on the other the push is to battle it out - so as to ensure market share. The battle continues - oscillating between these two rather conflicting scenarios.
Falling oil prices are a cause of concern to most producers, both within and outside the OPEC. The urge to promote understanding between the producers, to make a coordinated cut in output so as to achieve a fair market balance continues. Many, from Iran to Venezuela and Saudi Arabia to Mexico - all have been stressing on it - for last many months. In pursuance, OPEC held an unusual 'technical' meeting last week with oil officials from non-member states, so as to forge a common response to fallen oil prices. Invitations were also sent out to Azerbaijan, Brazil, Colombia, Kazakhstan, Norway and Oman.
OPEC and its kingpin Saudi Arabia, have been sending out feelers, for months now, they could be ready for a coordinated move, in case non-OPEC players - including Russia - are ready to cut output. Even Iran, otherwise close to Russia politically, has lately been urging Russia to coordinate. At an oil conference in Tehran last week, Iran’s Oil Minister Bijan Zanganeh also called for Russian cuts. “We hope Russia shows interest to cooperate with us to rebalance the market,” he said in Tehran.
Yet the prospects of any real movement towards the rather 'elusive goal' remains dim. Russia has been adamant, ruling out any 'artificial' output cut - to prop up the markets. While ruling out the cuts categorically, Russian Deputy Prime Minister Arkady Dvorkovich last month had said that output may only decline if prices remain low for a sustained period. And even then Dvorkovich had underlined, 'production wouldn’t fall by much.'
Hence the push toward the strategy to defend market share continues to dominate and divide. Geopolitical goals seem pushing producers on contradictory trajectories. They continue to differ on more than one issue - making the prospects of coordinated move - on the global energy chessboard - further remote.
A battle royal is in the offing. The race to win and maintain share in China, the world's largest importer, and parts of Europe continues to fuel fierce competition between Russia and OPEC oil producers.
Ever since exports to the U.S. started to go down and Riyadh was dethroned, many years ago from the slot of the top crude supplier to the U.S. the Kingdom has its eyes fixed on the growing Asian markets. And the policy had market reasons. As per the Paris based International Energy Agency, China alone will be responsible for more than a quarter of consumption growth next year. And already China is importing near record crude volumes to fill its stockpiles, taking advantage of low oil prices. Beijing is the star in the otherwise dull market.
Lately Russia has been getting increasingly competitive against Saudi Arabia in Asia and mainly China, the kingdom’s biggest market. The Saudi share in China is under threat from a resurgent Russia. Moscow briefly surpassed Riyadh as Beijing’s leading crude supplier in May and as per BMI Research, Russia is poised to strengthen its position over the next decade as it builds a second pipeline to China.
Saudi Arabia indeed cannot sit idle to the growing challenge. As per Bloomberg News, Saudi Aramco is looking at multi-billion-dollar deals to buy marketing, refining and retail assets from China’s CNPC. And in the meantime, the petrochemical giant SABIC is reportedly planning at least three joint venture projects in China.
A battle of wits between the two also seems unfolding on the European petroleum markets This so far involves Russia and Saudi Arabia but soon may also see Iran weighing in.
In response to Russian strategy of making inroads into the Chinese market, the Russian share in the European oil market is now under attack. European refineries are boosting purchase of crude from Saudi Arabia, Russian online publication Gazeta.ru, is reporting.
In recent months, several oil majors have stepped up purchases of Saudi crude oil for their refineries in Western Europe and the Mediterranean. On Oct. 13, the head of the Russian state-controlled oil giant Rosneft, Igor Sechin, said that Saudi Arabia had started selling its oil in Poland (too). The country has long been a Russian customer. Last year, about three quartes of Polish fuel imports came from Russia, with the rest from Kazakhstan and European countries.
Russian oil executives too are worried. "Isn't this move a first step toward a redivision of Western markets?" Nikolai Rubchenkov, an executive at Tatneft, also underlined at an oil roundtable. "Shouldn't the government's energy strategy contain some measures to safeguard Russia's interests in its existing Western markets?"
Leonid Bershidsky writing for Bloomberg says in the 1970s, Saudi Arabia sent half of its oil to Europe, but then the Soviet Union built export pipelines from its abundant West Siberian oilfields, and the Saudis switched to Asian markets, where demand was growing and better prices could be had.
The Saudi share of the European crude market kept dropping and in 2009, it constituted mere 5.9 percent of the total market. Russia's share peaked at 34.8 percent in 2011.However, in recent years, Saudi Arabia has slowly increased its presence, reaching a 8.6 percent share in 2013. And Poland, an almost virgin market for Saudi crude as yet, is also now on Riyadh's radar.
The ongoing Russian military interference in Syria could also be somewhat linked to the competition between the two to ensure respective share in energy markets. In order to protect its share in the European markets, Moscow does not appear ready to allow others, Saudi Arabia and Qatar included, to establish export routes in Syria.
Thus with Russian energy supremacy in Europe now at stake, Putin could be least tempted to let Syria slip out of his hands, some are now asserting. Oil wars have been a part of history. Russian entry into Syrian theatre seems no different!
