Barclays Bank announced in a memo today, Wednesday, that Saudi Arabia's decision to abandon its plans for expanding its oil production capacity was likely driven by more flexible supply expectations and a change in its outlook on demand. Barclays noted that this decision would ease market participants' concerns about how quickly the country might phase out unilateral production adjustments, suggesting that increased volatility could follow if demand continues to exceed expectations or if conflicts in the Middle East escalate.
The memo stated, "If demand forecasts are declining, as one of the lower-cost producers, Saudi Arabia might be in a better position to increase its production to slow the pace of the transition and investments in international capacity."
On Tuesday, the Saudi government ordered the state oil company, Aramco, to halt its oil expansion plans and target a maximum sustainable production capacity of 12 million barrels per day, which is one million barrels per day less than the goal announced in 2020. The Kingdom is the world’s largest oil exporter, pumping about nine million barrels per day, which is significantly below its capacity after it reduced production under an agreement with OPEC and its allies.
