The output of oil from Russia reached peak levels in 2015 not seen since the era of the Soviet Union. It has now edged out Saudi Arabia as the largest exporter of crude to China.
Gas prices have plummeted due to a glut of oil across the world, which is great news for consumers hoping to fuel up a car without breaking the bank.
But the low oil prices pose problems for nations whose main earnings come from oil exports. With more oil in the international market, prices continue to drop.
Market watchers have stated that oil production must shrink to fix this problem, but that would require countries that are competing economically, many of which are antagonistic towards each other politically, to strike a deal.
This situation applies most pressingly to Saudi Arabia and Russia, two of the world’s biggest oil producers that have no intention of striking a deal with each other. An international effort would require both to agree to reduce oil exports, a deal unlikely to happen.
“Russia can only coordinate with countries outside of Saudi Arabia, like Venezuela,” an anonymous Morgan Stanley managing director told CNBC. “Any cooperation without Saudi Arabia won’t lead to a production cut. Everything else is a sideshow.”
Experts expect that, with both sides refusing to cooperate, oil production will not be cut until at least 2017.
“With the possibility of a production-cutting deal quickly fading into the sunset, market participants are once again left to focus on the reality of the oversupplied global market,” wrote Energy Management Institute analyst Dominick Chirichella, according to Reuters.
The country that has been importing the largest volume of oil has been China, and Russia has hugely increased its crude output to meet that nation’s demand.
In 2010, Saudi Arabia accounted for 20 percent of China’s crude imports while Russia was only 7 percent, according to Business Insider.
In 2016, both countries are heavily competitive in exporting to China. Commodity strategist Michael Tran observed that Saudi Arabia “finds itself neck and neck with Moscow for the lead in Chinese market share, with both jostling in the 13-14 percent range, yet the momentum resides with the latter.”
This has put pressure on Saudi Arabia, but Russia may not have the last laugh.
Columbia University professor Robert Legvold told CNBC that Russia is mining as much of its oil resources as it can to compensate for the plummeting value of its currency and constricting international sanctions. At this rate, Legvold observed, “Russia’s existing developed reserves may be tapped out at this rate within two years.”