Saudi Arabia’s Aramco abandons plans to increase its maximum oil production capacity

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Saudi Arabia’s state-controlled Aramco on Tuesday announced it is pausing plans to raise its crude production capacity from 12 million barrels per day to 13 million barrels per day.

In a statement, the world’s largest crude exporter said it had been ordered by the Saudi Ministry of Energy to maintain its Maximum Sustainable Capacity (MSC) at current levels, several years and billions of dollars since it received a directive to boost production capacity to 13 million barrels per day by 2027.

Aramco, which went public in 2019, revealed the reasons for the ministry’s ruling and said it would update its capital spending guidance when its 2023 effects are announced in March.

At 7 a. m. London time, Brent crude oil prices for March delivery were up 0. 24% from the previous final price of $82. 60 a barrel. WTI contracts for March delivery rose 0. 35% to $77. 05 a barrel.

Tuesday’s announcement comes amid growing considerations about the outlook for oil demand, given the slow transition to decarbonization that casts a shadow over long-term investment plans in fossil fuels.

Global oil demand is expected to have risen from 2. 3 million barrels per day in 2023 to 101. 7 million barrels per day, according to the International Energy Agency’s annual report released in December.

However, the IEA noted that this “masks the effect of a further weakening of the macroeconomic climate. “

“Global expansion demand for 4Q23 was revised down to around 400 Mb/d, with Europe accounting for more of some of the decline,” the IEA said.

“The slowdown is expected to continue in 2024, with global earnings halved to 1. 1 mb/d, while GDP expansion remains below trend in primary economies. “

Saudi Arabia has led a cohort of voices within the coalition of the Organization of the Petroleum Exporting Countries and its allies — collectively known as OPEC+ — that have insisted on a dual energy transition strategy that still utilizes oil and gas until renewable resources are sufficient to meet global demand, in order to avoid global shortages. Critics have questioned this approach as self-serving for fossil fuel producers, which have been raking in immense profits since Western sanctions cut off access to Russian seaborne crude and oil products after Moscow’s invasion of Ukraine.

As OPEC’s de facto leader, Riyadh sets the tone for the group’s policy, in which idle production capacity and the resulting ability to boost values are political leverage. This was critically illustrated during a war of words between OPEC heavyweights Saudi Arabia and Russia in the spring. of 2020, sparking a brief price war as both countries ramped up production and flooded the market, before reconciling a month later in reaction to the Covid-19 pandemic.

Riyadh is postponing any further capacity increases — and cutting its capacity to capture a larger percentage of the market — at a time when the U. S. is generating unprecedented crude despite President Joe Biden’s climate policies.

Saudi Arabia is at a crossroads of expansion as Riyadh seeks to diversify its economy away from its main reliance on oil and fuel revenues, according to the Vision 2030 timeline put forward by Saudi Crown Prince Mohammed bin Salman. Based on this initiative, Saudi Arabia is focusing on 14 gigaprojects, adding the Neom Industrial Complex.

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