Maksim Safaniuk
Saudi Aramco, the state-owned oil giant, has been thrown into an abrupt turn as the Saudi government orders it to maintain its oil production capacity. This directive represents a significant deviation from Aramco’s earlier intention to broaden its capacity, all while global oil demand casts a shadow of uncertainty.
The Ministry of Energy in Saudi Arabia has mandated the world’s largest oil producer to uphold its Maximum Sustainable Capacity at 12 million barrels per day. Aramco’s capital spending guidance is expected to undergo an update upon the announcement of its 2023 results in March, as per the company’s statement.
Aramco had set its sights on expanding its maximum capacity to 13 million barrels per day by 2027, under the anticipation of an upsurge in long-term energy demand.
“It’s the clearest sign yet that the kingdom is moderating its expectations of global oil demand growth in the coming years,” remarked Vandana Hari, the founder of Vanda Insights, underlining the significant shift in strategy.
Saudi Arabia is currently producing 9 million barrels per day, a substantial shortfall from its capacity of 12 million barrels per day. This deficit is attributable to the production cuts that commenced towards the end of 2022, undertaken by OPEC+ to reinvigorate the oil market and avert a supply surplus.
The directive to Aramco arrives amidst mounting apprehensions regarding oil demand, as nations steadily pivot away from fossil fuels towards cleaner energy alternatives.
The International Energy Agency has projected that fossil fuel demand is poised to crest by 2030, a prognosis that has met with skepticism from many industry stakeholders, including Aramco’s head, Amin Nasser. They remain firm in their belief that oil will continue to wield substantial influence for years to come.
The latest decision by Aramco does not imply a shift in perspective on oil demand, as clarified by an individual with firsthand knowledge of the matter to Reuters. “If the government decides to go the other way, the company is ready,” they emphasized.
Oil prices experienced a slight retreat at the opening of the week, with front-month Nymex crude (CL1:COM) for February delivery down by 0.2% at $76.59 per barrel, while front-month March Brent crude (CO1:COM) dipped 0.3% to $81.59 per barrel.
