Saudi Aramco’s decision to downshift to a 12 MMbbl/d target from 13 MMbbl/d isn’t likely to disrupt markets by causing a tightening in the global supply and demand balance, according to a Feb. 1 analysis from Wood Mackenzie.

Ann Louise Hittle, WoodMac’s vice president of oil markets said that “based on our forecast for oil demand to peak in 2030, the shift to a 12 MMbbl/d target … should be absorbed in the market.” Aramco’s decision to scale back capacity came at the behest of the Saudi Ministry of Energy.

WoodMac analysts said that in the second half of 2023, Saudi Arabia’s crude oil production averaged 9 MMbbl/d — a level projected to continue for the first half of this year at an average of 9.1 MMbbl/d.

That will leave Saudi Arabia’s spare crude production capacity at 3 MMbbl/d at present, which is higher than “the usual 2 to 2.5 [MMbbl/d] cushion the Saudis maintain to act as the main swing producer in the global oil market,” the firm said in a market update. 

“In recent years, Saudi Arabia’s production was being curtailed at varying levels since the pandemic. With the production agreement and voluntary cuts introduced in 2022-2023, the need to increase capacity was becoming less pressing,” Hittle said. “With spare capacity higher than usual and a persistent need to reduce production, this is an astute time to abandon the 13 MMbbl/d capacity target.” 

Alexandre Araman, upstream principal analyst for Wood Mackenzie, added that recent cost increases in the industry and pressure on prices likely factored into Saudi Arabia’s decision. 

“Aramco is heavily investing in a trio of oil megaprojects at Zuluf, Marjan and Berri, along with infill drilling at its legacy fields to slow production declines,” Araman said. “To increase capacity to 13 MMbbl/d, other expansion projects such as Safaniyah and Manifa as well as the commercialization of new discoveries are more than required.”

However, costs have substantially increased since the pandemic, and it “makes less sense now for Aramco to go after projects that are getting more expensive when it doesn’t see opportunities to significantly increase production while prices are under pressure,” Araman said. 

He added that Aramco is investing in other opportunities besides crude oil, including the development of unconventional gas at the giant Jafurah Basin and the acquisition of a minority stake in the MidOcean LNG business, effectively swapping more investment in domestic oil for natural gas. 

“While concentration on domestic oil in the world’s most advantaged basin is clearly a huge positive, increasing exposure to domestic and international gas will add more diversity and boost sustainability,” Araman said.

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