The Phases of Saudi Oil Policy: What Next?
This presentation delivered at the Department of Business, Energy & Industrial Strategy (BEIS) analyses the main factors shaping Saudi oil policy and the various phases of the Kingdom’s oil policy since the 2008 financial crisis. It is possible to identify four such phases: 1) In the aftermath of the 2008 financial crisis, Saudi Arabia decided to cut output in the face of a temporary demand shock sending a strong signal about its preferred price of $75/barrel; 2) In the face of supply disruptions following the Arab Spring and the sanctions on Iran in 2011—12, Saudi Arabia increased its output to fill the supply gap and adjusted its preferred price upwards to $100/barrel; 3) Towards the end of 2014, in the face of the large supply-demand imbalance caused by a prolonged period of high and stable oil prices, non-cooperation from other producers, and structural uncertainties hitting the oil market, Saudi Arabia opted not to cut output and instead boosted its production in an attempt to maintain market share; 4) In 2016, Saudi Arabia signaled a change in stance and took the leading role in engineering a cut within OPEC and with non-OPEC. This presentation examines the main factors that could explain the recent change in Saudi Arabia’s behavior; analyses the costs and uncertainties associated with maintaining market share strategy; and explores some of the potential scenarios that could play out in 2017. As argued elsewhere, Saudi oil policy is shaped by multiple factors and as these factors change and/or as new information becomes available, Saudi Arabia’s oil policy will also change. It is also argued that, as in 2016, OPEC behavior will be the key factor shaping oil market dynamics in 2017.