Saudi Arabia is poised to abandon its unofficial $100 per barrel price target for crude oil, indicating a willingness to increase production. This decision reflects a broader acceptance of potentially lower oil prices, according to sources familiar with the situation.
The world’s largest oil exporter, along with seven other OPEC+ members, had planned to reverse long-standing production cuts starting in October. However, a two-month delay led to doubts about the group’s ability to increase output. Recently, Brent crude prices fell below $70, the lowest level since December 2021.
Despite these challenges, Saudi officials are committed to resuming production as scheduled on December 1, even if it results in lower prices for an extended period. The Saudi energy ministry did not respond to inquiries about this change.
This marks a significant shift for Saudi Arabia, which has led OPEC+ in cutting output since November 2022 to keep prices high. In 2022, Brent averaged $99 a barrel, driven by market disruptions following Russia’s invasion of Ukraine, but prices have since decreased.
Increased supply from non-OPEC producers, especially the U.S., along with sluggish demand growth in China, has diminished the effectiveness of OPEC+ cuts. So far in September, Brent has averaged $73 a barrel, despite heightened tensions from the Israel-Hamas conflict.
The International Monetary Fund states that Saudi Arabia requires oil prices close to $100 a barrel to balance its budget. Crown Prince Mohammed bin Salman aims to fund ambitious megaprojects as part of economic reforms. However, the kingdom has determined it cannot continue losing market share to other producers and feels equipped to handle lower prices through foreign reserves and sovereign debt.
Historically, Saudi Arabia ended the $100 oil era a decade ago by boosting output to counter the rise of U.S. shale production. More recently, under Energy Minister Prince Abdulaziz bin Salman, the kingdom focused on maximizing revenue through production cuts.
This strategy has occasionally strained relations with the U.S., particularly when Washington sought increased production following Russia’s invasion of Ukraine. Saudi Arabia has accounted for a significant portion of OPEC+ cuts, reducing its output by 2 million barrels per day over the past two years.
Currently, the kingdom’s production stands at 8.9 million barrels per day, the lowest level since 2011, excluding the pandemic and a 2019 attack on its oil processing facility.
Under the revised plan, Saudi Arabia will increase its production by 83,000 barrels per day starting in December, aiming for an overall increase of 1 million barrels per day by December 2025.
Saudi Arabia is frustrated by non-compliance from some OPEC members, like Iraq and Kazakhstan, who have exceeded their production quotas. OPEC Secretary-General Haitham Al Ghais visited these countries in August to secure commitments to adjust their output.
However, Saudi Arabia remains vigilant about compliance and may expedite its own output increases if these countries fail to adhere to agreed-upon production levels.
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