Aramco Halts Plan To Increase Maximum Crude Production Capacity Amid Oil Demand Uncertainty

In a development that could have wider implications for the oil market, Saudi Arabia's state-owned Aramco has suspended its plan to boost its maximum crude production capacity. The decision comes against the backdrop of a shifting global landscape, with increasing concerns about the future of oil demand.

What Happened: On Tuesday, Aramco announced its decision to halt plans to increase crude production capacity from 12 million barrels per day to 13 million barrels per day, as per a CNBC report. The decision marks a significant shift from the directive received years ago and after billions of dollars invested to boost production capacity by 2027.

The announcement coincides with growing concerns about the global oil demand outlook, especially with the global shift towards decarbonization. The International Energy Agency (IEA) projected an increase in global oil demand by 2.3 million barrels per day in 2023 to 101.7 million barrels per day in its December annual report but also acknowledged a weakening macroeconomic climate.

The Saudi Ministry of Energy instructed Aramco to keep its Maximum Sustainable Capacity (MSC) at current levels. The company, which went public in 2019, did not disclose the reasons behind this decision, but mentioned that it will update its capital spending guidance in March during its full-year results announcement for 2023.

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Why It Matters: Aramco’s decision comes on the heels of a series of events that have rocked the oil market. In December, Oil prices fell to five-month lows as traders remained wary that OPEC+ production cuts would have sufficient impact to offset any loss in demand from a global economic slowdown.

Earlier this month, Saudi Arabia drastically reduced oil prices, leading to a significant increase in short positions in both Brent crude and West Texas Intermediate crude. Analysts then speculated that the Saudi price cut could signal a decrease in crude demand or an effort to undermine the West's growing crude production with a "market share war."

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Saudi Aramco Photo by Piotr Swat on Shutterstock


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Posted In: NewsCommoditiesMarketsAramcoBrent CrudecrudeKaustubh BagalkoteOilOil MarketSaudi ArabiaSaudi AramcoWTI
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