TORONTO: Two major, unrelated events, could impact the energy world in a big way.

As US President-elect Donald Trump gets ready for the White House, a new era of cooperation and coordination between Moscow and Washington seems imminent.

Russia, the world’s largest crude producer, is getting close to the United States. Could this have ramifications for the energy world too?

In October, Russia’s crude output reached a post-Soviet high of 11.2 million barrels per day (47.386m tonnes — up from 45.483m tonnes in September).

And Russia is endeavouring to give a boost to its output further. It expects a rise in oil output in 2017 to 548m tonnes, due to new fields coming on-stream. Analysts quoted by Reuters feel that Russia has the potential for growth to 2019 when an output peak of 570-575m tonnes could be reached. Russia would definitely be looking for markets for this additional output. Trump’s election win seems a God-gifted opportunity.

And while Washington seems to be forging closer, political and economic, ties with Moscow, the president-elect seemed to be twisting the arms of Gulf Arab allies by underlining he wanted to stop buying oil from Arab countries unless they commit ground troops to combat Islamic State or reimbursed the US for its efforts.

During the course of the long election campaign, Trump vowed to secure and strive for the US energy independence from “our foes and the oil cartels,” targeting a “complete American energy independence.”

Could these pronouncements impact the crude buying pattern of the United States — the world’s largest consumer of crude oil? Riyadh is cognizant of the challenges ahead. Defending continued Saudi crude sales to the US, the Saudi oil minister Khalid Al-Falih, said in an interview, “at his heart President-elect Trump will see the benefits (of Saudi oil imports) and I think the oil industry will also be advising him accordingly that blocking trade in any product is not healthy.”

Mr Falih also reminded the president-elect that the US “benefits more than anybody else from global free trade,” adding “energy is the lifeblood of the global economy”.

Saudi Arabia is already the largest Middle Eastern oil supplier to the US with an 11 per cent market share and has also invested heavily in US downstream assets (refineries) to help lock in that supply. Around 31pc of all US oil imports are from the Organisation of the Petroleum Exporting Countries (Opec) members.

Riyadh today is the second-largest source of US crude oil imports, supplying 1.1 million bpd in 2015. In contrast, Russian crude exports to the United States are hardly significant. As per the EIA, the US crude imports from Russia in 2015 were only 38,000 bpd. In 2014 it was even below — 18,000 bpd.

Is this all about to change?

Already Riyadh and Moscow are battling it out in China. As the competition to grab market share intensified, Russia edged out Saudi Arabia from the top spot in China. While Russian oil exports to China increased by nearly 42pc to over 22 million tonnes from January to May, during the same period, the Saudi oil exports to China totaled 21.8 million tonnes.

At the beginning of the decade, Saudi market share of the Chinese market was around 20pc, while Russian crude exports were below 7pc. Saudi sales to China doubled to more than 1 million bpd in 2011 from 500,000 bpd in 2007 but have barely grown since. Russian oil exports to China over the past five years has doubled — up by 500,000 bpd Russia has been exploiting a tactical advantage in the Chinese market. Moscow uses the Russian-Chinese oil pipelines that are already in place, to ship oil to the Chinese markets, whereas, the voyage for Saudi crude to China (a distance of around 6500 nautical miles) can take three weeks or more.

In order to overcome this handicap, Saudi Arabia has lately been offering more cargoes at spot prices with more lenient payment terms.

Saudi Aramco is also expanding its oil storage capacity in the region. In April this year, Aramco sold its first cargo to a Chinese independent refiner from Okinawa, in Japan. Riyadh is also looking at setting up storage in China too.

And the battle rages. Could we expect the same in the US markets too?

In the wake of Trump presidency, nothing could be ruled out.

Published in Dawn, November 27th, 2016