Saudi Aramco Instructed Against Increasing Oil Production Capacity

Saudi Aramco, the world's largest oil company, has been instructed by the kingdom's energy ministry to retain its Maximum Sustainable Capacity (MSC) at 12 million barrels per day (MMBD) and refrain from further increasing it to 13 MMBD.

The MSC, as determined by Saudi Arabia's energy ministry, was initially directed to be raised to 13 MMBD from 12 MMBD in 2020.

Aramco had previously targeted capital expenditures between $45 billion and $55 billion for 2023, but it will revise that estimate when it announces its full-year 2023 results in March. In line with OPEC+'s steps to stabilize the market in the face of declining global demand, this decision is in line with Saudi Arabia's attempts to reduce output to 9 million barrels per day. In light of the increased geopolitical tensions in the Middle East, LSEG data shows that Brent oil was trading at $82.57 a barrel.

In November of the previous year, Aramco reaffirmed its commitment to strategically expanding the MSC to 13 MMBD by 2027 through ongoing engineering, procurement, and construction activities. The company reported a total hydrocarbon production of 12.8 million barrels of oil equivalent per day (mmboed) in the third quarter of 2023, as outlined in its financial statement for that period.

MSC represents the average maximum daily crude oil production achievable for a year during any future planning period, factoring in all planned capital expenditures and maintenance, repair, and operating costs.

Citi Research interprets the Saudi Government's decision to halt Aramco's +1 mbpd capacity build program as an acknowledgement within OPEC+ of the growing capacity overhang in global oil markets. This recognition underscores the need for Saudi Arabia to continue ceding market share to accommodate the growth of competitors like US shale, Guyana, and Brazil. Citi Research suggests that the market should anticipate Saudi Arabia's commitment to defending $70 per barrel at all costs, at least in the short term.

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