Home Estate Planning Saudi Aramco production cut prompts questions about future oil demand

Saudi Aramco production cut prompts questions about future oil demand

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Saudi Aramco said today that it will cancel a planned production boost after receiving orders from Saudi Arabia’s energy minister.

Saudi Aramco, which is 98 per cent owned by the Saudi Arabian state, said it has ditched a plan to increase its maximum production capacity from 12m barrels a day to 13m b/d by 2027. Saudi Aramco is currently producing about 9m b/d.

The firm, which is the world’s largest oil company by revenue with a market cap of $2trn, did not give a reason for the decision.

Aramco’s announcement did not appear to have any immediate impact on oil prices, with the global benchmark WTI Brent Crude trading at $82.25 at the time of reporting.

The news, however, has split industry experts on what the decision signals about future global demand for oil and where prices might go.

Viktor Katona, an oil market analyst at Kpler, told City A.M. that the decision shows a company in tune with the wider uncertainties hanging over the global oil market.

“OPEC+ will be here to stay for many years and with Saudi production at 9m bpd it seems highly unlikely that Riyadh could combine a high price environment with maximum production across the country,” he said.

“Not producing as much as they can is also a long-term bet because oil reserves won’t deplete as fast so Saudi Arabia’s new mantra is ‘produce less for higher prices,” he added.

Ziad Daoud, Bloomberg’s chief emerging markets economist, noted that the news could indicate either the company is less optimistic about global demand as the energy transition progresses or that the decision was taken to free up the Kingdom of Saudi Arabia to pursue other avenues.

However, Amena Bakr, a senior analyst with Energy Intelligence, said that Aramco’s move doesn’t necessarily cement a change in Saudi Arabia’s long-term outlook.

“This is a flexible decision that can be reversed again at the discretion of the kingdom’s leadership,” she wrote on X. “This decision does not change Aramco’s view on demand growth this year or into the future … recently Aramco’s CEO said growth is expected at 1.5 million bpd.”

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