Saudi Arabia: Saudi crude output still downbeat in March; Brent prices pick up
Brent crude oil prices averaged USD 84.96 per barrel in March, up 3.9% from February. On 29 March, the commodity traded at USD 87.42 per barrel, up 4.3% from 29 February. Supply cuts by OPEC+ and robust demand drove up prices.
Turning to production, Saudi oil output rose slightly to 9.04 mbpd (million barrels per day) in March from February’s 9.02 mbpd, remaining at one of the lowest levels in the past decade.
Saudi crude output declined 8.6% last year, and is set to fall further this year, albeit at a gentler pace. Our panelists had projected an expansion until the Kingdom’s recent commitment to prolong its unilateral 1.0 mbpd cut until the end of Q2 2024. This is separate from OPEC+ production curbs in place since June 2023 that are due to last until the end of 2024.
Looking further ahead, oil production is set to recover to near peak levels next year as production curbs are rolled back. That said, the recovery ahead is projected to be less strong than initially expected by the market; the national oil firm Aramco abandoned its plan to raise capacity to 13.00 mbpd from 12.00 mbpd by 2027 in January, with the government seeking to diversify the economy and to switch to natural gas production.
Analysts at Goldman Sachs said:
“We assume that elevated spare capacity will lead OPEC+ to raise production. We assume that crude supply from the 8 countries which announced the latest 2.2mb/d additional package of cuts in June and November 2023 rises by 1.2mb/d from July through November 2024, with a 0.75mb/d Saudi contribution.”
On Aramco’s switch to gas, analysts at S&P Global commented:
“The gas production growth target was raised [in March] to “more than 60%” by 2030, against a 2021 baseline, compared with a previous goal of “more than 50%”. Aramco’s 2021 gas production was 10.1 Bcf/d. The directive to not expand oil capacity means some projects will be cancelled, such as the Safaniya and Manifa increment programs.”