Announced in 2020 the Saudi Government requested Aramco to increase their oil production output from 12 million barrels per day (bpd) to 13. Today this increase has been halted. In the past, Saudi crown prince Mohammed bin Salman, has publicly said that they could increase to 20 million bpd. While potentially possible, this now seems very unlikely.

Does This Mean Peak Oil Sooner?

Many climate activists will be delighted with this news. Coming just after the COP28 UN Climate Change Conference, is this an indication that the Saudi government think that demand will be less than previously thought?

The Increase In Production Has Been Shelved Rather Than Scrapped.

No is the short answer. The increase in production has been shelved rather than scrapped. USA shale has surprised many by the increase in production. South American countries Brazil and especially Guyana are increasing their production faster than predicted. This extra competition and slower than hoped global economic growth has helped create an oversupply in world markets. An extra million barrels per day from Saudi could bring the price of oil crashing down. No producers want that, especially the Saudis.

Oil Price Maintenance

By making this announcement and continuing to keep their production 3 million bpd below their current maximum capacity of 12 million bpd, the oil price has a chance of remaining above $70 per barrel.

Long Term Growth

The Saudi's see longer term growth, especially in developing countries. They can wait and return to increase capacity in the future, when conditions for them improve. There is the question over how long the USA can sustain their current production levels. World oil demand is still going up every year and will continue to do so for several years at least. The oil industry isn't going away any time soon. It will be a big part of the energy mix for several decades and possibly the rest of this century.

Business As Usual

It is very expensive to complete new wells. Much of the extra million barrels per day was planned to come from offshore oil fields, where it is even more expensive. The cash will now be allocated towards other projects, like their shale gas development Jafurah or their new foray in to LNG after the purchase of MidOcean Energy.

Today The Share Prices Of Many Of These Companies Dipped.

Service Contractors Take A Hit

With Aramco, oil services companies like Halliburton, SLB, Baker Hughes, Subsea7 and others, have put a lot of time and effort in to the upcoming push for extra Saudi production. They have been ramping up their operations over the last year or more, new employees have been hired and equipment purchased. Today the share prices of many of these companies dipped. Over the last 3 months, it has been suddenly and oddly much quieter than normal for the large Saudi departments of these companies. This though wouldn't have been a worry, as dealing with Aramco can sometimes be unpredictable, but the news today will come as a blow to all the companies involved. Aramco's share price went up a little with the news that they would now probably not be spending as much on new wells as planned. We'll find that out in more detail this March during their financial statement.

About The Author
Urian Udell
Chewells Contributor

Urian is passionate about carbon capture. He is a staunch believer in the continued use of oil... »

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Replies

• Aba Selassie (June 8, 2024)
  Well, hold on there oil patch dude, cause the Saudi's are now claiming to target 12.3 million barrels per day by 2028. After that who knows, maybe they will go even higher. We have still to reach peak oil so anything could happen. They may go millions more than 13 one day.
• Oil patch dude (June 2, 2024)
  13 million is the big goal. While back the Iraq government set themselves the target of 13 million barrels per day (Saudi was on 12). Then they revised that back again and again, down well below 10 million. Just can't get the wells drilled. Seems like some oil companies are avoiding the country with its bureaucracy and corruption. No one is going to get 13 million now.
• Amanda Duarte (Feb 21, 2024)
  This decision may have as much or more to do with increased competition rather than any reduction in oil consumption. Many countries are getting their production started or ramped up. Including Guyana, Uganda, Egypt, UAE and others. Also, what if Venezuela suddenly get their act together? All this and more will be on the minds of the shrewd Saudi government.
• Urian Udell (Feb 20, 2024)
  To put this in perspective, the Saudis currently produce around 9 million barrels per day. Their maximum production capacity is 12 million barrels per day. Until this announcement, they were going to increase that maximum to 13 million. The world consumes a bit less than 100 million barrels per day.

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