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No Single Oil Producer Can Drive Prices Right Now. Here's Why

Published 12/19/2019, 11:07 AM
Updated 07/09/2023, 06:31 AM

For oil traders focused on the production side of the industry, a serious concern is always the ability to identify the so-called swing producers, usually identified by a country, capable of moving the price of crude up or down based on their own policies.

In order for a swing producer to shift the price of the commodity, they must be able to either flood the market with enough additional oil to cause oversupply or cut production significantly enough to effect undersupply or at least create the impression of oversupply or undersupply among speculators. For a swing producer to have the power to push prices up, there must be no other player in the global market with significant spare capacity to make up the difference.

Right now, as we head into the new decade, there are no swing producers. Here's what that means for the market:

Crude Oil WTI Future Monthly Chart

Saudi Arabia: The Almost Swing Producer

Saudi Arabia is the closest we have to a swing producer. Presently responsible for just under 10 million barrels per day, Saudi Arabia has the ability to generate up to its current capacity of 12 million barrels per day or more. That would indicate enough of an increase to drop prices on the global markets.

However, Saudi Arabia is very unlikely to significantly increase production now because it must abide by OPEC quotas. Increased production is not great for the health of its reserves since it wants to always maintain enough spare capacity in case of emergencies and it does not want lower prices at the moment. At some point, Saudi Arabia may change its mind, especially to increase Aramco (SE:2222) profits.

At present, Saudi Arabia does not have the ability to boost prices. Of course, like any producer, it can decrease, halt or suspend its own production. Saudi Arabia is in the most practical position to do this as it does not desperately need the cash in the short term. However, if Saudi Arabia were to drastically decrease production in an effort to raise crude prices, other producers like the U.S., Brazil, Norway, and maybe Canada could fill the void. Moreover, some of Saudi Arabia’s OPEC and OPEC + partners would cheat on their quotas and overproduce if the economics were too tempting.

United States: Biggest Player, No Synchronization

The other name that often comes up as a swing producer these days is the U.S. While the nation produces the largest amount of oil, at a rate of 12.8 million barrels per day in November, it cannot be a swing producer. It lacks any centralized production policy, and individual producing companies would violate U.S. antitrust laws if they coordinated. Therefore, it cannot decrease or increase production in a synchronized effort, even if the individual companies wanted to.

Sometimes U.S. producers appear to act in unison because they are all reacting to the same economic situations, but they are not a single entity, and they do not function as a swing producer.

The total global oil production continues to hover somewhere around 100 million barrels per day. A significant change from that number—up or down—will alter the price of oil. Yet, traders and market watchers should not expect any individual country to make that change. Instead, they should look for changes to be products of the economy and the market itself.

Latest comments

ARAMCO ipo might change Saudi's mindset.  Valuation can be based on earning, or asset value which is directly tagged to oil price.  To drill on the market could be more attractive than drill on sand, until they unloaded all the shares.  Than they could flood the market.  This is just a SWAG, not prediction.
Not really. Considering there use just a little more fossil fuels then regular cars. Think the study by the Germans was about 4% more between fossil fuels used for lithium mining and production, production of all parts of vehicles, and charging of vehicles etc. Same is for wind and solar as of now for FF used in production and energy production lifetime.
oil buy or sell
trash , seee  the precie
does 1 million electric cars influence price any? Ford and GM racing to produce electronics has no influence?
iran on discount 8.5 dallor per barrel classy
Disagree. There are other ways to influence oil prices outside of production cuts or increases. Do we feel like the back and forth between Iran and S.A. is over? I don't. Sanctions by one country can considerably alter prices as well.
Other than the temporary jump from the attack on Saudi oil facilities, oil sanctions haven't impacted prices this year. The US has sanctions on both Venezuela and Iran and neither caused an increase in oil prices. In fact, Phase One of the U.S.-China trade pact probably had the biggest impact on oil prices this year (other than the temporary effect from Abqaiq and Khurais).
That was so informative,
Lol
thanks
oil downside for 2020
thank u was inform Ellen..
Thank you.
So  convincing  and  professional  as  usual  .  Bravo  bella  Ellen  .
"Dr" Ellen you always show up to pump oil. Like seriously, when was the last time you said oil was getting too high? No, not when oil was at 70+ and dropped big. In fact, probably never. Hard to take you seriously when it seems like you have an agenda, perhaps on behalf of "Saudi, Inc"
@Mike Ross ... so you would like Ellen to inject a bias "oil is to high," or "oil is to low" into analysis? Wouldn't that cloud the FACTS of her analysis. This isn't MSNBC or CNN.
 Most of her "analysis" falls into the 'oil is too low' category. I have read her stuff for last 3 years, can't remember once she indicated that there are reasons for oil price is go down. There are definitely two sides to the story here and I'd criticize someone who is always a bear just like I criticize those who are always a bull
Thanks
By next year oil price will move upwards...for WTI Crude will be at,$65.00 to $68.00.
thank you Ellen
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