Saudi Arabia, an oil-producing nation exporting seven million barrels of oil each day, has enjoyed its reputation as the world’s largest oil exporter for three-quarters of a century now. The country’s dominance of the world’s oil markets is now drawing to a close, however. The International Energy Agency recently released information that showed the U.S. would move past Saudi Arabia to take the number one spot for exports in six years. The U.S. is already the world’s largest oil producer.
The event has profound implications for everything from the way global markets function to Middle Eastern peace. The most direct effect, however, is on oil prices.
What Will Happen to the Price of Oil?
Oil prices are unlikely to change much in the immediate future. According to the IEA, growth in oil demand will continue to steadily rise as it has over the past year. Demand will be principally driven by the airline, marine and petrochemicals industries. Demand from the consumer market will slow, however, with consumers in advanced countries moving to electric vehicles and vehicles with improved fuel efficiency. Prices will rise and remain high over the next six years, giving the world’s poorer oil exporting nations a bit of leeway. By the year 2025, however, with American exports rising, prices will likely fall.
The US Relationship With Saudi Arabia
Back in 1974, President Nixon signed a deal with King Faisal of Saudi Arabia, guaranteeing the king’s hold on power in return for the promise to buy American sovereign debt in large amounts. As part of the deal, the U.S. imported vast quantities of Saudi oil in exchange for military hardware and training.
The petrodollar, which was the fundamental standard that international trade relied on for decades, came out of this deal. It has made sure ever since then that American governments could simply export debt to Saudi Arabia. Even if the American economy performed poorly, it could always run up a deficit and export its debt to that country. With the latest American military hardware at its disposal, Saudi Arabia has been able to turn itself into a regional military superpower, bullying everyone from the nation of Qatar to tiny neighbors such as Lebanon.
With the U.S. rising in power as the world’s largest oil exporter, Saudi power will begin to diminish. With only military imports from the U.S. to cling to, Saudi Arabia no longer influences U.S. policy as it once did.
Oil in the Future
The IEA has long tried to assess the world’s oil markets independently, without regard to geopolitics. This may become increasingly difficult now. Geopolitical concerns are beginning to affect the oil markets more than ever before. Oil demand will keep growing at a rate of 1.2 million bpd over the next five years, with no peak in sight.
In the near term, most of the world’s growth in oil supply will need to come from Iraq, and other countries such as Brazil, Guyana and Norway.
The U.S. is doing more than turning into the world’s biggest oil exporter; it is the world’s largest consumer of oil, as well, recently overtaking China. Strong U.S. demand is driven by robust economic growth, and a great deal of growth in the petrochemicals industry, which deals in commodities such as plastics. Growth of U.S. consumption each year is about a half a million bpd.
According to Sigma Drilling Technologies, a leading producer of pulsation dampeners, growing American consumption and production can only mean that American drillers needs to ramp up to meet demand in the short term. Consistent investment in mud pump performance and other solutions is critical to reliable performance.
To request a free demonstration of innovative pulsation solutions, call Sigma Drilling Technologies today at (281) 656-9298 or submit our online form.
