Saudi Arabia tells Aramco to halt production capacity expansion
Saudi Arabia's state-owned oil major Aramco has decided to maintain its current maximum sustainable production capacity at 12 million b/d.
PHOTO: Oil pipeline valve in front of Saudi Arabia flag. Getty Images
Aramco attributed the reversal to the Saudi Ministry of Energy's directive. Saudi's energy ministry, however, has not provided a specific reason for maintaining Aramco's current production capacity.
This decision marks a significant policy shift for Saudi, as it had previously announced its intention to increase oil production capacity to 13 million b/d by 2027 on the back of an anticipated rise in demand from Asian countries such as India and China.
Riyadh has consistently reduced production over the years to support oil prices amidst slowing demand growth and increased output from the US and other non-OPEC producers.
In addition, the International Energy Agency (IEA) projected global demand growth to ease sharply from 2.3 million b/d in 2023 to 1.2 mb/d in 2024, “as macroeconomic headwinds, tighter efficiency standards and an expanding EV fleet compound the baseline effect” in its January oil market report.
The kingdom's decision to maintain production capacity could exacerbate concerns around an uncertain demand environment and pull Brent’s price lower in the near term.
“It may be to save money. But most likely it implies that it sees no need for this extra oil in the global market,” Bjarne Schieldrop, chief analyst of commodities at Swedish investment bank SEB Group said in a note.
Saudi’s output as of December 2023 was 8.95 million b/d, against a sustainable production capacity of 12.17 million b/d, according to IEA.
“If Saudi Arabia chose to lift its capacity to 13 m [million] b/d it would probably aim to produce 11 m [million] b/d. If it chose to do so then the world would happily consume it but the oil price would be lower and non-OPEC producers with higher costs would have to back off,” Schieldrop added.
By Konica Bhatt
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