Saudi influence on oil price to decline

U.S. President Barack Obama talks with Saudi Arabia's King Salman bin Abdulaziz Al Saud(R) after arriving in Riyadh, Saudi Arabia, on Jan. 27, 2015. Obama cut short his visit to India to be able to visit Saudi Arabia to offer his condolences and discuss key regional and international topics.
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U.S. President Barack Obama talks with Saudi Arabia's King Salman bin Abdulaziz Al Saud(R) after arriving in Riyadh, Saudi Arabia, on Jan. 27, 2015. Obama cut short his visit to India to be able to visit Saudi Arabia to offer his condolences and discuss key regional and international topics.
U.S. President Barack Obama talks with Saudi Arabia’s King Salman bin Abdulaziz Al Saud(R) after arriving in Riyadh, Saudi Arabia, on Jan. 27, 2015. Obama cut short his visit to India to be able to visit Saudi Arabia to offer his condolences and discuss key regional and international topics.

With Saudi Arabia moving beyond its long-held role as a simple exporter of crude oil and reshaping itself as a supplier of refined petroleum products, the kingdom will be less able to influence prices and balance global oil markets, a study says.

The paper, published in the journal Energy Policy, examined the growth of Saudi refining, the country’s increased domestic demand for crude oil and the geopolitical effects of this development.

“This is the type of change we expect to see as a state moves to a more advanced stage of development,” said study author Jim Krane from the Baker Institute for Public Policy, Rice University in the US.

There are plenty of upsides from investing in refining, including reducing the kingdom’s reliance on fuel imports and capturing margins now lost to the competition, Krane explained.

“Refining also allows the Saudis to export their heavy crude oil to a wider array of customers, beyond the select few importers who have invested in configurations that can handle heavy crudes,” he pointed out.

However, there are also downsides, starting with an erosion of Saudi Arabia’s traditional role as the global “swing supplier” of crude oil.

With more oil production diverted into refining, the kingdom, which has provided some protection against volatility, will have reduced flexibility to “swing” oil production alongside fluctuations in global price and demand, the study noted.

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