This article first appeared in The Edge Financial Daily, on March 16, 2017.

WE have already reached that stage in Saudi Arabia’s poker game with the oil market where it drops the stony face and simply declares, “I’m not bluffing.”

As Bloomberg reported on Tuesday, Opec’s Monthly Oil Market Report showed an odd discrepancy in Saudi Arabia’s production numbers for February. Opec publishes two sets of such supply figures, official ones provided by members and estimates derived from secondary sources (a sure sign of rock-solid trust, that). While secondary sources had Saudi Arabian output falling by 68,000 barrels a day last month, the country claims it actually boosted it by 263,000 barrels a day.

This is unusual, not only in terms of the size of the gap, but the fact that one measure rose while the other fell. Looking back through Opec’s monthly reports to August 2014 — around when oil prices began their slide from triple digits — that misalignment has occurred in only seven out of 31 months (see chart — Alternative Facts).

And in no other month was the discrepancy as big as February’s. The chart shows the absolute gap between the changes in production, according to the two sets of figures.

It is important to note that Saudi Arabia’s own numbers took its output back above the psychological level of 10 million barrels a day. This adds to the sense that February’s weird discrepancy is a not-so-subtle signal that Saudi Arabia will not bear the burden of supply cuts disproportionately. Indeed, the country’s own energy minister told a conference audience in Houston last week that Saudi Arabia refused to be “used” by others.

Clearly, this is aimed at both oil producers within Opec’s own ranks and elsewhere. Non-Opec producers that also signed on to the agreement to cut, notably Russia, are not yet delivering the goods (or rather still delivering too much).

Yet Saudi Arabia likely hopes US shale producers are also listening. Indeed, as Bloomberg reported, Opec members met with shale producers in Houston last week for talks about the market. For Opec, that is a sign of desperation; for the latter, it is something they should think twice about repeating if they value public support for their industry.

If anything, though, Saudi Arabia’s tactics serve to highlight how few cards it actually holds.

Saudi Arabia, the organisation’s de-facto leader, has swung from an all-out war for market share back to a policy of managing production and now to a warning it will not necessarily stay the course on that, all in the space of about two-and-a-half years. This is demonstrates just how much shale producers have disrupted the global oil market.

There is simply an inherent weakness in Saudi Arabia’s position. If it talks up prices — and cuts supply to back that up — then it risks both encouraging rival supplies and dampening demand. Production from shale basins, which can come online in a matter of months, has sped up this adjustment process.

But if Saudi Arabia instead tries to talk down the market — and raise production — then prices will fall. This would actually allow market forces to do their thing (something to watch out for in coming months).

It is especially worrying for Saudi Arabia and other Opec members that Tuesday’s report from the organisation noted a recent recovery in output from Canadian oil sands, a relatively high-cost source of supply that should be suffering much more at today’s price levels. While headlines about the likes of Royal Dutch Shell plc selling off most of its oil-sands assets suggest a terminal decline, do not forget someone bought those assets — and I am guessing they are not planning to shut them down.

As I have written, Saudi Arabia is in a race to restructure its economy in order to live with lower oil prices, just as oil companies the world over are restructuring their operations and adopting technologies in order to do the same. The former’s resort to jawboning tells you who ultimately has the harder task. — Bloomberg