Aramco storage tanks, in Jeddah (Saudi Arabia). Amr Nabil (AP)
In a brief note, of two brief paragraphs, the world's largest oil company filled the oil market with speculation this Tuesday.
“Aramco announces that it has received the order from the [Saudi] Ministry of Energy to maintain its maximum [production] capacity at 12 million barrels per day and not continue increasing it to 13 million barrels” in 2027, the statement reads. the state firm, which calls for March to know more details.
That million extra barrels that it announced in March 2020—at the dawn of the pandemic—and that it will stop putting on the market three years from now is equivalent to almost 1% of global supply, which is said to be soon.
However, the price of Brent crude oil—the benchmark in Europe—barely reacted this Tuesday and was trading practically flat, with the shares of the main Western oil companies rising.
More information
Increased supply and weak demand flood the oil market
The decision of Saudi Arabia – the leading oil exporter on a global scale and responsible for around 10% of world supply – is, first of all, a surprise.
Although it has been cutting its supply for months to try to support the price of crude oil—a key variable for the stability of its now battered public finances and to finance the million-dollar investment plan with which it wants to navigate the post-oil era—very few analysts contemplated a complete reversal of the pumping strategy that prevailed until today.
Secondly, the announcement is the confirmation of what the International Energy Agency (IEA) has been emphasizing for months and that the OPEC cartel – eternally led by Riyadh – refuses to admit: that the oil market is showing growing signs of flooding due to a mix of lower demand and strong supply.
In mid-January, in its last temperature measurement, the energy arm of the OECD projected an increase in pumping in the United States, Brazil, Guyana and Canada that will exceed "by a wide margin" the increase in demand contained by lower growth economic in large consumers such as China and the emergence of the electric car.
The Saudi movement, analysts from the US bank Morgan Stanley maintain in a note to clients, suggests that “the [Saudi] Government's demand expectation will not grow as much as it anticipated.”
A decision that could lead to a drop in Aramco's investment in exploration and production in the coming years, which it will announce at the March meeting with investors.
“It may be an attempt to preserve money.
But what it really implies is that [Riyadh] sees that there is no room in the global market for that extra crude,” said Bjarne Schieldrop, head of commodity analysis at Skandinaviska Enskilda Banken, in statements to Reuters.
“The decision to increase from 12 to 13 million barrels per day was made at a time of price war with Russia, in which Saudi Arabia had to show muscle.
The moment was very different from today,” contextualizes Jorge León, senior vice president of the energy consulting firm Rystad Energy after many years as an OPEC analyst.
Today, he says in conversation with this newspaper, “Saudi Arabia has three million idle capacity, and in the short and medium term it will not need much more.
Nobody believes that this additional production will be needed in 2027, but from now on it leaves the door open to expanding its pumping.”
León's reading is one of "pause, perhaps temporary, with Aramco willing to increase when the Saudi authorities require it."
For this reason, and because they are long-term plans, the market “has not reacted as one would expect.”
In the future, however, the Rystad specialist believes that the opposite situation may occur: "At the moment in which demand falls sharply, largely due to electric cars, both Saudi Arabia and the rest of the large producers of "The Middle East is going to increase its production to try to monetize its last barrels as much as possible."
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