This is a major blow to Joe Biden, who had hoped to take advantage of cutting costs at the pump in an election year.
Saudi Arabia has cast doubt on the future of the global oil market after abandoning plans to grow its crude production capacity by 1m barrels a day.
The world’s biggest exporter signalled a big change in policy by ordering the state oil company, Saudi Aramco, to drop plans to expand its maximum production capacity to 13m barrels a day by 2027.
The move raises questions about the future of global oil demand, weeks after an influential report revealed that a global peak in global oil demand could occur before the end of this decade.
The International Energy Agency said the faltering global economy would slow the development of global oil demand from this year, before the adoption of electric cars in the second part of the decade led to a surge in consumption.
Riyadh’s order to abandon Aramco’s expansion plans is expected to “cause repercussions on the energy complex” and has already “triggered many hypotheses about the potential implications for global oil demand in the medium to long term,” according to Biraj Borkhataria, an analyst at RBC. Capital.
The move could also underpin falling oil markets, which would be a major blow to U. S. President Joe Biden, who would benefit from lower costs at the pump ahead of elections scheduled for later this year.
The oil benchmark is around $81 per barrel, just below the average value in 2023, despite the Israel-Gaza standoff that erupted in October and a significant escalation in attacks on ships in the Red Sea.
In response, Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries (OPEC) agreed to withhold more than 1 million barrels of oil production according to the day to support prices.
Saudi Arabia produced about nine million barrels of oil per day last year, enough to meet about 10% of global demand, but has the capacity to produce up to 12 million. In the past, Saudi Crown Prince Mohammed bin Salman has claimed that the kingdom could simply increase its capacity to 20 million barrels per day.
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The resolution to abandon plans to increase its capacity may simply “suggest that OPEC is beginning to recognize that it has a problem,” according to Citi analysts. They added that this represented “a lavish overhaul of strategy and would have broad ramifications on Aramco’s capital expenditures, the Gulf supply chain, and, of course, OPEC’s oil policy. “
The crown prince called for the multibillion-dollar expansion plan in 2020 in a show of strength as the global oil market began to falter in the face of the Covid-19 pandemic.