When Chevron Oil engineers discovered a vast ocean of oil under the Arabian kingdom 78-years-ago, now known as Saudi Arabia, their king was incredulous at the news. He had no idea of the vast wealth it would bring his desert country asking only, “Did you find any water?”
That was a long time ago. Saudi Arabia went on to become the world’s largest oil producer and rich beyond the imagination of any one man that ever lived in the country. Its rulers welded the power of the elite nations of the world and industrialized giants bowed at their feet.
Today, Saudi Arabia has less power on world energy markets as cuts in oil drilling help rival producers like Iran, Russia and the U.S. In fact, its crude exports to the U.S. for the week ended March 10 fell by 426,000 barrels a day from the previous week. The is the sharpest decline since November and it is expected to decline even more.
The Wall Street Journal reported the Petroleum Exporting Countries last fall voluntarily cut output to support oil prices after a significant collapse. Now the kingdom is seeking new customers, namely China. The Chinese are the fastest growing consumers of oil.
That is not good news for Russia, presently China’s biggest supplier. The Saudis need higher oil revenue. It faces fiscal pressures from a burgeoning population. As recently as 2014, Saudi Arabia kept pumping oil even as its price started to plunge.
Now the U.S. is a major player again. Americans have revived oil fields with the use of fracking technology that extracts gas and crude from shale formations. For the first time in many decades, this country is an exporter of energy products. The U.S. is now selling more than 1 million barrels of oil a day to foreign customers. American shale companies have taken advantage of the resulting higher prices to launch a comeback, adding 412,000 barrels a day of new output.
Saudi Arabia has cut production by nearly 800,000 barrels a day since October. They are more concerned with stabilizing oil prices for their country’s economy. They are now in a position to compete, which is something they have not experienced in many years.
It is the U.S. market that is bringing Saudi Arabia back to earth. Their most lucrative market is waning and mild panic has emerged. In the 1990s, Saudi Arabia accounted for almost a third of all American crude imports. But it represented only 12 percent in November, according to the EIA.
Under the Obama administration, American foreign policy saw a distinct drift away from the desert oasis. The Saudis have one industry only; oil. Their new alliances will be of primary interest to an America that needs all the friends it can keep in the Middle East.