Saudi Aramco said Tuesday that it would call off plans to expand its oil output, a remarkable turnaround by one of the world’s leading petroleum producers.
Aramco, the national oil company of Saudi Arabia, said the government in Riyadh had directed it to maintain its “maximum sustainable capacity” of crude oil production at 12 million barrels a day, and give up a drive to increase it to 13 million barrels a day by 2027, a plan announced several years ago.
The oil giant did not provide a reason for the pullback. But it could be a sign that the Saudis are changing their thinking about future supply and demand for their oil. Global oil supplies have recently been stronger than the Saudis may have anticipated because of strong growth in output from shale drilling in the United States, which is now the world’s leading oil producer, and other sources. At the same time, some analysts expect demand to level out in the coming decade.
“The decision probably reflects a view that the world does not need as much Saudi oil as was previously expected,” said Neil Beveridge, an analyst at Bernstein, a research firm.
The government may want to free up money to spend on Crown Prince Mohammed bin Salman’s ambitious development plans, as well as on alternative sources of energy like natural gas and hydrogen. Aramco said it had received instructions to dial back expansion from the ministry of energy, which is run by Prince Abdulaziz bin Salman, the older half brother of the crown prince.
Reducing future capacity at a time of growing tension in the Middle East could create worries, but the Saudi move does not mean that there will be a drop in oil volumes anytime soon, analysts say. At the moment, Aramco is producing about three million barrels a day less than it can.