Saudi Aramco suddenly abandons plans to increase oil production

Saudi Aramco suddenly abandons plans to increase oil production

Saudi Aramco said on Tuesday it would cancel plans to expand its oil production, a remarkable turnaround by one of the world’s leading petroleum producers.

Saudi Arabia’s national oil company Aramco said it was instructed by the Riyadh government to maintain its “maximum sustainable capacity” of crude oil production at 12 million barrels per day and abandon a campaign to increase it to 13 million. barrels per day by 2027, a plan that was announced several years ago.

The oil giant did not give any reason for its withdrawal. But it could be a sign that the Saudis are changing their thinking about the future supply and demand of their oil. Global oil supply has been stronger than Saudi expectations recently due to strong growth in output from shale drilling in the United States, now the world’s leading oil producer, and other sources. At the same time, some analysts expect demand to level out in the coming decade.

“The decision probably reflects the view that the world does not need as much Saudi oil as previously expected,” said Neil Beveridge, an analyst at Bernstein, a research firm.

The government may want to free up funds to spend on Crown Prince Mohammed bin Salman’s ambitious development plans as well as alternative sources of energy such as natural gas and hydrogen. Aramco said it had received instructions to withdraw the extension from the Energy Ministry, which is run by Prince Abdulaziz bin Salman, the crown prince’s elder half-brother.

Analysts say reducing future capacity at a time of rising tensions in the Middle East could raise concerns, but the Saudi move does not mean oil volumes will fall anytime soon. Currently, Aramco is producing about 3 million barrels per day less than its capacity.

Still, Mr Beveridge said low investment in capacity is “bullish” for oil prices. He also said the Saudis could send a signal to close allies such as the United Arab Emirates and Kuwait that they should back off from their expansion plans.

However, oil prices fell slightly in Tuesday trade.

Certainly, recent experience argues against major investments in more oil production. Saudi Aramco is investing billions to increase production, but the company has not been able to pump anywhere near its stated capacity of about 12 million barrels per day.

That’s because OPEC Plus, as the leaders of the producer group, is keeping its production at about nine million barrels a day to prop up Saudi prices.

However, Aramco said it would continue some plans already underway for additional production to compensate for the natural decline of existing oil fields.

The Saudi government may be trying to allow Aramco to reduce its investment commitments at a time when higher industry activity has pushed up the cost of drilling and other services.

“Aramco is being given room to slow down,” said Richard Bronze, head of geopolitics at research firm Energy Aspects. The exemption will let the company choose when it wants to spend money on developing new oil fields, he said, rather than being forced to do so when costs are high.

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