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Saudi Aramco Halts Capacity Boost Amid Oil Demand Concerns
January 30, 2024
Saudi Arabia Directs Aramco to Hold Oil Production Steady
Saudi Arabia has given its national oil company, Aramco, an important instruction: keep oil production levels steady. This is a noteworthy change in course for the oil giant, which previously planned to increase its capacity. The decision reflects the country’s caution about the unpredictable future of global oil demand.
The Saudi Energy Ministry has told the world’s top oil producer to keep its Maximum Sustainable Capacity at 12 million barrels per day (bbl/day). In light of this instruction, Aramco mentioned, “The company will update its capital spending guidance when its 2023 results are announced in March,” hinting at potential adjustments to its investment approach on the horizon.
Aramco’s Expansion Plans Put on Ice
Aramco had been aiming to boost its output capacity to 13 million bbl/day by 2027, banking on an expected rise in energy demand over the medium to long term. Energy analyst Vandana Hari commented on the situation, stating, “It’s the clearest sign yet that the kingdom is scaling back its expectations for growth in the global oil demand in the next few years.” This suggests a careful reconsideration of strategy amid changing market predictions.
OPEC+ Cuts and Saudi Oil Production Levels
Though it has the capability to produce 12 million bbl/day, Saudi Arabia is currently extracting just 9 million bbl/day. This reduced output aligns with the cutbacks OPEC+ introduced late last year, which were aimed at boosting the market and preventing a supply glut.
Changing Tides in Global Energy Demand
At a time when the world’s energy landscape is evolving and countries are moving towards renewables, reducing dependence on fossil fuels, Aramco’s directive seems particularly timely. The International Energy Agency forecasts that fossil fuel demand could peak before 2030—a prospect that some, including Aramco’s CEO Amin Nasser, meet with a dose of skepticism, arguing for the sustained relevance of oil in the energy mix.
Yet despite this shift in operational focus, an industry insider assured Reuters that Aramco remains confident in the long-term demand for oil, pointing out that the company is ready to adapt if the government’s stance changes.
Market Response to the Announcement
The market’s reaction to this announcement was subdued in early week trading, with a slight dip observed on Tuesday. February delivery of front-month Nymex crude (CL1:COM) fell by 0.2%, trading at $76.59/bbl, while March Brent crude (CO1:COM) dropped 0.3% to $81.59/bbl, indicating that traders may have already factored in Saudi Arabia’s new policy direction.