Saudi Aramco to boost capacity; Abu Dhabi to increase supply

Business

FILE – In this file photo dated 1990, Aramco refinery at Ras Tannura, Saudi Arabia. The price of oil surged Friday Jan. 3, 2020, as global investors were gripped with uncertainty over the potential repercussions and any retaliation, after the United States killed Iran’s top general Qassem Soleimani.(AP Photo/FILE)

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DUBAI, United Arab Emirates (AP) — Saudi Arabia steamed ahead on Wednesday with its new energy play by directing the kingdom’s oil company Aramco on Wednesday to increase its maximum production capacity, while Abu Dhabi’s oil and gas company ADNOC followed suit by saying it was boosting output by 25% to 4 million barrels per day.

Abu Dhabi’s decision to increase production comes after Saudi Arabia took steps to essentially flood the market to dominate a greater share, after major oil producer Russia refused to go along with more production cuts. Meanwhile, global demand for oil is slowing down due to the outbreak of a new virus that’s hampered travel and business.

Saudi Arabia said this week it would increase its crude oil production to 12.3 million barrels a day starting in April. That’s 300,000 barrels per day more than Aramco’s current maximum sustained capacity. Now the company says it is boosting that output capacity to 13 million barrels per day, giving the kingdom greater maneuverability.

Aramco did not say when that capacity increase would happen, according to Wednesday’s announcement on the Saudi Tadawul stock exchange. Late last year, the company floated 1.7% of its shares on the Tadawul, raising nearly $30 billion in the largest IPO in history.

Aramco said the decision was a directive from the Saudi Energy Ministry. The kingdom’s energy policy is largely directed by Crown Prince Mohammed bin Salman and the country’s Energy Minister Prince Abdulaziz bin Salman. The two are half-brothers and sons of the king.

Saudi Arabia has been producing around 9.8 million barrels per day, carrying the bulk of cuts that were agreed upon by OPEC members and other major oil producers, namely Russia, to stave off an oversupply in the market that would further push prices down.

Over the weekend, the kingdom’s strategy dramatically pivoted when Russia refused to cooperate on further and deeper production cuts. It was expected that other OPEC member-states would follow suit and increase production in response to Saudi Arabia’s moves.

Abu Dhabi’s ADNOC on Wednesday said it was responding to current market conditions and would increase output from about 3 million barrels to over 4 million barrels of oil a day starting next month. In addition, the company said it will accelerate plans for its 5 million barrel per day production capacity target.

By increasing output and production, and slashing its official selling prices to Asia, analysts say it appears Saudi Arabia is now looking to pressure Russia by dominating market share, since it was unable to secure market price.

The price war pushed the price of crude down 25% on Monday, the sharpest decline seen since the 1991 Gulf War. The price of international benchmark Brent crude recovered some on Tuesday and was trading around $36 a barrel on Wednesday.

“The most likely outcome of this crisis is entrenchment into a painful process that lasts several weeks or months, until prices are low enough to change fundamental views in Moscow and Riyadh back to some form of compromise,” according to political risk consulting firm Eurasia Group.

Eurasia Group said that the price war will, meanwhile, exert pressure on U.S. crude exports, which recently hit a record 4 million barrels per day, because they will struggle to get their cargoes to clients at profit.

Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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