The state-owned Saudi Arabian Oil Co, also known as Saudi Aramco, surprisingly announced on Tuesday that it has canceled a previously planned expansion of its oil output. This decision leads us towards a major strategic change for one of the world's biggest oil companies. The original plan included increasing production capacity by approximately 8%, leading to 13 million barrels per day by 2027 - a strategy unveiled years ago.
The company's recent directions from Riyadh's government called for the maintenance of a "maximum sustainable capacity" for crude oil production at 12 million barrels per day. Aramco, however, did not provide a justifiable reason for halting the increase in oil output, leading to widespread speculation.
This decision opens up conjecture that Riyadh may be anticipating a decline in oil consumption, mostly due to increasing global efforts to shift towards low-carbon energy. Another line of thought suggests that the Saudi government is looking to redirect funds towards Crown Prince Mohammed bin Salman's ambitious developmental ventures and investments in alternative energy resources such as natural gas and hydrogen.
According to Aramco, the directive to withdraw the enlargement of outputs was given by the Ministry of Energy, headed by Prince Abdulaziz bin Salman, the elder half-brother of the crown prince.
Potentially influencing this decision could also be the unexpected surge in global oil supplies. The increase in supplies could be attributed to the exponential growth in shale oil production in the United States, the world's leading oil producer. The present market dynamics - the surplus in global oil supplies, may have incited the Saudis to reconsider their plans for capacity expansion.
