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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, did not disclose the reason behind the ministry’s decision and said it will update its capital spending guidance when its full-year 2023 results are announced in March.
At 7 a.m. London time, Brent crude prices for March delivery were up 0.24% from previous close price at $82.60 per barrel. WTI contracts for March delivery were up 0.35% at $77.05 per barrel.
The Tuesday announcement comes amid mounting concerns over the outlook for oil demand worldwide, given a progressing global transition toward decarbonization that casts a shadow over long-term investment projects in fossil fuels.
Global oil demand is projected to have risen by 2.3 million barrels per day in 2023 to 101.7 million barrels per day, according to the International Energy Agency’s annual report published in December.
However, the IEA noted that this “masks the impact of a further weakening of the macroeconomic climate.”
“Global 4Q23 demand growth has been revised down by almost 400 kb/d, with Europe making up more than half the decline,” the IEA said.
“The slowdown is set to continue in 2024, with global gains halving to 1.1 mb/d, as GDP growth stays below trend in major 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 de-facto leader of OPEC, Riyadh often sets the tone of the policy of the group, in which spare production capacity and the consequent ability to steer prices provide political leverage. This was illustrated critically during a disagreement between OPEC+ heavyweights Saudi Arabia and Russia in the spring of 2020, which sparked a brief price war as both nations ramped up their output and flooded the market, before reconciling a month later to respond to the Covid-19 pandemic.
Riyadh is halting further capacity increases — and reducing its ability to capture further market share — at a time when the U.S. is producing an unprecedented volume of crude despite President Joe Biden’s climate-geared policies.
Saudi Arabia is at a growth crossroads, as Riyadh seeks to diversify its economy away from predominant dependence on oil and gas revenues under the Vision 2030 program launched by Saudi Crown Prince Mohammed bin Salman. Under this initiative, Saudi Arabia is focusing on 14 giga-projects, including the Neom industrial complex.