Saudi Aramco was directed to reduce future production capacity from 13 million barrels per day (bpd) to 12 million bpd, eliminating a massive pile of spare capacity that was expected to be brought online by 2027. The decision, handed down by the Saudi government, is likely reflective of the country’s shifting strategy toward oil markets and its tie-ins with the Kingdom’s annual budget. Crude prices have recently jumped back above the breakeven level required for Saudi Arabia to meet its fiscal needs and its likely the crown would like to keep them there. This is just the latest move in Saudi Arabia’s apparent shift in focus from production to profitability, building on long-implemented cuts to its production levels.
Related ETF & Stocks: Energy Select Sector SPDR Fund (XLE), Saudi Arabian Oil Company (2222.SR)
What appeared to be a major shift in the long-term goals of Saudi Aramco, the world’s largest oil producer, was formalized on Tuesday when the state-owned enterprise significantly scaled back a plan to boost its oil output capacity. Over the past 15 months, Saudi Arabia has partnered with Russia and other OPEC+ members to collectively cut a total of 6 million barrels per day (bpd) of crude oil from peak production levels, with the Kingdom shouldering a reduction of 1 million bpd by itself until at least the end of Q1.
Production targets are now being slashed as well. The Saudi government has asked Aramco to halt its oil expansion plan and to target a maximum sustained production capacity of just 12 million bpd through 2027. Though still significantly above current output levels near 9 million bpd, the new target is down from a 13 million bpd target, announced in 2020. The company will update its capital-spending guidance accordingly when its full-year 2023 results are disclosed in March.
Reuters reports that the move does not reflect a change of view on future oil demand scenarios nor stems from any technical issue. As recently as 2016, Saudi crown prince Mohammed bin Salman had claimed that the kingdom could increase its capacity to…
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