Saudi Arabia: Playing the Role of 'Regulator' in the Oil Market?

While 11 OPEC members along with an equal number of oil-producing countries have committed to reducing oil production by 1.8 million barrels per day since the beginning of this year, statistics show that Saudi Arabia and the Gulf Arab countries have demonstrated the most compliance with their commitments. Reuters reported that despite having emphasized for three decades that it would no longer accept the role of oil market regulator, Saudi Arabia, along with its Arab allies in the Gulf, has taken on the largest share of regulating this market and has executed a greater reduction in oil production compared to other countries. The report indicates that in January, Russia reduced its oil production by only one-third of what it had promised, having committed to a reduction of 300,000 barrels per day. According to Reuters, other non-OPEC countries are also expected to reduce their oil production by a similar amount. OPEC members had stated that they would reduce their production by 1.2 million barrels per day to expedite the elimination of excess oil in the market. The continued excess oil production in the market led to a sharp decline in oil prices from mid-2014, dropping from over $105 to $27 per barrel in January of last year. However, with the decision of OPEC members and 11 other countries, global oil prices increased to around $56. Reuters added that oil-producing countries have committed to reducing their daily production by an average of about 1.8 million barrels in the first half of this year and can fulfill their commitments with further production cuts in the coming months. Thus, the incomplete execution of commitments by OPEC and non-OPEC members in January does not signify a failure of the oil production reduction agreement, and it remains to be seen how much they will produce in the coming months. The report further states that nonetheless, Saudi Arabia and its allies in the Gulf Cooperation Council have been at the forefront of reducing production to restore balance to the oil market and have adhered well to their commitments from the outset. According to Reuters, Saudi Arabia has consistently stated since the mid-1980s that it would not take on the role of market regulator; however, it has always been compelled to shoulder the largest production cuts to prevent market imbalance. Saudi Arabia even reduced its daily production from 10 million barrels in 1980 to less than 3 million barrels in 1985 for a time to halt the decline in oil prices in global markets. The country also reduced its production in 1999 and again in 2008, leading the way in cutting production to prevent excess oil in global markets. Nevertheless, since 2014 until last year, when global oil prices sharply declined again, Saudi Arabia has consistently defended its position of maintaining its share in global oil markets, stating that falling prices would lead to the production of some countries, such as U.S. shale oil, being rendered unviable due to high production costs, making it economically unfeasible at lower prices. On November 30 of last year, 11 OPEC members committed to reducing their production by 4 percent each. Given that Saudi Arabia had a nearly 30 percent share of total OPEC oil production with a daily output of 10.5 million barrels, it naturally took on the largest reduction in this organization. Iran, Nigeria, and Libya, which had reduced their production in recent years due to sanctions and internal conflict, were exempt from this plan. According to Reuters statistics, Saudi Arabia, which committed to a daily reduction of 486,000 barrels, cut its production by 564,000 barrels in January, meaning it reduced production 16 percent more than it had committed. Angola also reduced its production by 29 percent more than its commitment in January, while other countries reduced their production by less than their commitments. Overall, 11 OPEC members executed 82 percent of their commitments in January, a figure largely attributed to Saudi Arabia's excessive production cuts.