Saudi Arabia is ready to increase production and abandon its unofficial crude price target of $100 a barrel, according to people familiar with its thinking, a sign that the kingdom has accepted lower oil prices.
The world’s largest oil exporter and seven other members of the OPEC+ producer group were due to end long-standing production cuts in early October but then delayed the plan by two months, sparking speculation about whether it would be able to increase output. Brent crude prices fell below $70 earlier this month to their lowest level since December 2021.
However, people familiar with the matter said Saudi officials are committed to resuming production increases on Dec. 1, even if that leads to lower prices for a long time. The Saudi Energy Ministry did not respond to a request for comment.
This marks a major shift in stance for Saudi Arabia, which has led other OPEC+ members in multiple production cuts since November 2022 to try to maintain high oil prices.
Prices for international benchmark Brent crude hit an average of $99 a barrel, an eight-year high, in 2022 as the fallout from the Russia-Ukraine conflict roiled markets, but have since retreated.
Over time, rising supply from non-OPEC producers, especially the United States, and weak Chinese demand growth have weakened the impact of OPEC+ cuts. So far in September, Brent crude has averaged $73 a barrel, even as Israel’s war with Hamas threatens to escalate into a wider regional conflict.
Saudi Arabia needs oil prices close to $100 a barrel to balance its budget, according to the International Monetary Fund, as Crown Prince Mohammed bin Salman seeks to finance a raft of megaprojects that are at the heart of his ambitious economic reform program.
However, Saudi Arabia has decided it does not want to continue ceding market share to other producers, the people said, adding that the kingdom believes it has enough alternative financing options to weather a period of lower oil prices, such as using foreign exchange reserves or issuing sovereign debt.
Saudi Arabia ended the era of $100-a-barrel oil a decade ago, increasing production as prices fell in 2014 to stem the rapid rise of the U.S. shale industry.
More recently, Saudi Arabia, under Energy Minister Prince Abdulaziz bin Salman, has sought to maximize revenue by cutting production to support prices.
However, the policy has at times inflamed tensions between Saudi Arabia and the United States, which unsuccessfully tried to get Saudi Arabia to increase production in 2022 after the Russia-Ukraine conflict caused a surge in oil prices.
Saudi Arabia has shouldered the bulk of OPEC+’s production cuts so far, reducing output by 2 million barrels per day over the past two years, accounting for more than a third of the alliance’s output cuts.
Saudi Arabia is currently producing 8.9 million barrels per day, its lowest level since 2011, except for the COVID-19 pandemic and the 2019 attack on the kingdom's state oil company's Abqaiq refinery.
Under the delayed start of the unwinding of production cuts, Saudi Arabia will increase production by 83,000 bpd per month from December, bringing its output to 1 million bpd by December 2025.
A key source of frustration for Saudi Arabia is that several OPEC members, including Iraq and Kazakhstan, have somewhat flouted the cuts and produced more than their respective quotas.
OPEC Secretary-General Haitham Al Ghais visited both countries in August and pledged to adjust future production plans to compensate for past supply gluts.
But Saudi Arabia remains concerned about OPEC members’ compliance with pledges to cut production, and could decide to cancel its own cuts faster than planned if any of them renege on their promises, one of the people added.
The article is forwarded from: Jinshi Data
