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State-controlled Saudi Aramco announced on Tuesday that it will halt plans to raise its crude oil production capacity from 12 million barrels per day to 13 million barrels per day.
The largest crude exporting country in the world said, in a statement, that it had received orders from the Saudi Ministry of Energy to maintain its maximum sustainable production capacity at current levels, after several years and billions of dollars since it received a directive to increase production capacity to 13 million barrels per day by 2027.
Aramco, which went public in 2019, did not reveal the reason behind the ministry's decision and said it would update its capital spending guidance when it announces its full-year 2023 results in March.
At 7 a.m. London time, Brent crude prices for March delivery rose by 0.24% from the previous closing price of $82.60 per barrel. West Texas Intermediate crude contracts for March delivery rose 0.35% to $77.05 a barrel.
Tuesday's announcement comes amid growing concerns about the outlook for oil demand around the world, given the global shift towards decarbonisation that is casting a shadow over long-term investment projects in fossil fuels.
Global oil demand is expected to rise 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 further weakness in the macroeconomic climate.”
The International Energy Agency said: “Global demand growth in the fourth quarter of 2023 was revised downward by about 400,000 barrels per day, and Europe contributed more than half of the decline.”
“The slowdown is expected to continue in 2024, with global gains halved to 1.1 million bpd, with GDP growth remaining below trend in major economies.”
Saudi Arabia has led a group of voices within the alliance of the Organization of the Petroleum Exporting Countries and its allies — known collectively as OPEC+ — that have insisted on a dual energy transition strategy that still uses oil and gas until renewable resources are sufficient to meet its needs. Global demand, in order to avoid global shortages. Critics have questioned the approach as self-serving for fossil fuel producers, who have been making huge profits since Western sanctions blocked access to Russian crude oil and seaborne petroleum products after Moscow's invasion of Ukraine.
As OPEC's de facto leader, Riyadh often sets the tone for the group's policy, where excess production capacity and the resulting ability to steer prices provide political leverage. This was demonstrated decisively during the dispute between OPEC+ heavyweights Saudi Arabia and Russia in the spring of 2020, which sparked a short price war as the two countries ramped up their production and flooded the market, before reconciling a month later to respond to the coronavirus. pandemic.
Riyadh is halting the increase of its production capacity – and reducing its ability to capture more market share – at a time when the United States is producing an unprecedented amount of crude oil despite President Joe Biden's climate-oriented policies.
Saudi Arabia is at the crossroads of growth, as Riyadh seeks to diversify its economy away from the prevailing reliance 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 Park.
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