Saudis could face an open revolt at next OPEC meeting

In fact, over this period, Saudi Arabia and its Gulf Arab allies increased their total output 18.1 percent while the output from the other OPEC members decreased 5.4 percent. During this period, the Saudi and Gulf Arab share of global output was flat, declining only 0.1 percentage point, while the share of the other members declined 1.5 percentage points, from 16.7 percent to 15.2 percent.

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Impact on Non-OPEC Producers as Advertised?

In defense of their policy, the Saudis could point to IEA projections that show the rate of growth in output from major non-OPEC producers slowing substantially in 2016, particularly in North America, a major Saudi target, and Brazil:

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However, it is reasonable for the OPEC outsiders to question the actual efficacy of Saudi policy on non-OPEC producers and the benefit it will bring them. In both the United States and Russia, each of which produces roughly as much as Saudi Arabia, output increased in 2015 rather than decreasing, and will continue to increase in 2016 in the U.S.

The IEA projects Brazil's output, despite Brazilian political turmoil, growing 6.45 percent in 2016. Moreover, Saudi policy, combined with the impact of U.S. and EU sanctions on Russia, led to the undesirable result for OPEC (and other oil exporters) that Russian exports have increased, from 7.21 million barrels/day in 2014 to 7.55 million barrels per day in 1H 2015, in part because as Russia's economy contracted, reducing domestic crude demand to 3.47 MMbbls/day in 1H 2015 from 3.65 MMbbls/day, while crude output increased to 11.025 MMbbls/day from 10.86 MMbbls/day.

Moreover, any comfort the OPEC outsiders gain at best may be cold comfort. While the IEA projects surplus production will begin to recede in 2H 2016, they are suffering now (and in any case, it is a projection). As we have pointed out, RBC Capital's fragile five, Algeria, Libya, Nigeria, Iraq and Venezuela, the pain is intense. Also, it is wealthy Saudi Arabia and its Gulf Arab allies and non-OPEC members, in particular the U.S., Canada, Mexico (foreign investment), and also Russia (Chinese investment), that will have the financial wherewithal to grow output to satisfy the 18 million barrel per day increase in demand that OPEC sees by 2040.

The December 2015 OPEC Meeting

Given the Saudi decision's positive impact on their and their Gulf Arab allies' relative position within OPEC and its negative impact on OPEC outsiders, it is possible, perhaps even likely, the Saudis will face an OPEC outsider revolt at the December 4 OPEC meeting.