If oil prices are going to rebound, a few countries that have spent two years trying to edge each other out of crude markets will have to learn to cooperate.
Members of the Organization of the Petroleum Exporting Countries have suffered serious economic pain as oil prices have languished over the last two years. But OPEC's largest producers —Saudi Arabia, Iraq and Iran — as well as nonmember Russia — have all pumped their way through the rout, seeking to capture more business to offset the falling value of their lifeblood product.
Their prolific pumping has pushed OPEC's production to all-time highs ahead of a meeting next week, where Saudi Arabia will try to impose output limits on the group's member countries. The record output has some analysts questioning whether OPEC can cut deeply enough to balance an oversupplied global market — especially given its members' poor history of sticking to quotas.
Many observers see OPEC's ability to deliver a serious deal as a referendum on the group's continuing relevance. That test comes at a time of profound change in the Middle East.
In Saudi Arabia, an ambitious young prince is spearheading the kingdom's efforts to diversify its economy by selling off a share of the state oil giant Saudi Aramco in order to create a $2 trillion investment fund. Many OPEC watchers believe that creates an incentive to boost oil prices so that Saudi Aramco's IPO looks more attractive.
Meanwhile, Iran is rebuilding its foreign oil trade after international powers lifted sanctions on Tehran in January, and Iraq is fighting to oust Islamic State militants from their Iraqi stronghold in Mosul. Keeping oil revenue flowing is central to those endeavors.
It's little surprise, then, that all three countries have been grabbing for more foreign business with both hands.
Iraq's October crude oil exports grew 15.1 percent from a year ago, while Saudi Arabia's jumped 6.8 percent. In the same period, tanker loadings from Iran have more than doubled, according to data from tanker-tracking firm ClipperData.
Tehran has made inroads in particular with India, which will be the largest driver of crude oil demand growth in the coming decades, according to the International Energy Agency. In October, Iran overtook Saudi Arabia as India's top supplier of crude oil.
"They're clawing some of that market share from others, but they're also helping to fill that gap of increasing demand," said Matt Smith, director of commodity research at ClipperData.
India purchased much of Iran's crude oil before the international community imposed sanctions on Tehran over its nuclear program. Iran is now winning back that business, in no small part because its crude is well-suited to India's refineries, according to John Kilduff, founding partner at investment management firm Again Capital.
Reading the data out of China is more difficult, because Beijing sources its massive crude imports from a wider array of oil-producing nations. But as erratic as the data are, they tell an important tale about the nature of the global crude markets today.
The first part of that story boils down to China's ability to dictate pricing. A country's crude exports may swing widely from month to month in part because China is able to shop around for the best price. ClipperData's figures for the last two years illustrate this:
Here, the big three OPEC players have to undercut not just one another, but Latin American and West African players, as well. In a price downturn where oil producers are scrambling for business, that works in China's favor.
"You think that prices dictate flows, but when it comes to China, it's such a large part of the market, it's the other way around. Their demand dictates prices," Smith said.
Historically, the Saudis primarily pursued long-term contracts, but they have recently been playing the spot market, selling from month to month to try to capture some of China's short-term demand, Kilduff said.
"They're getting sharper elbows," he said. "This price crash has really changed the landscape in so many ways."
Competition has only heated up since Russia pivoted to China and boosted trade ties with Beijing after the European Union and United States slapped the Kremlin with sanctions over its meddling in Ukraine and annexation of Crimea.
But while it's carving out more share in China, Russia's dominance in the shrinking European Union market for crude oil is being challenged by Iran. Tehran has quickly ramped up its exports to the EU, and Moscow must now also contend with Libyan oil after the war-wracked nation resumed exports from key ports this year.
OPEC's surprise shift to a hands-off approach in November 2014 — it previously cut output to boost prices — worsened the downturn and forced high-cost producers such as U.S. shale drillers to turn off the tap.
But in a sign that the group's strategy is coming full circle, Nigeria has made some room for fellow OPEC producers in Europe by increasing shipments of oil to the United States, where production fell along with oil prices after OPEC refused in 2014 to cut output.
"The lifting of the U.S. export ban meant that WTI [crude oil] came back in line with other global benchmarks. Combine this with falling production from Bakken [shale formation], and it became more economical for U.S. East Coast refiners to import Nigerian crude rather than domestic crude by rail economics," Smith said.