Global oil prices started increasing again after Saudi Arabia scrapped its plans to increase production.
Saudi Arabia scrapped plans to increase oil production by 2027, several sources have reported. This is a major blow to US President Joe Biden, who counted on lower oil prices ahead of the November 2024 election.
Saudi Aramco, the country’s most important oil company, was told by Saudi de facto ruler Mohammad Bin Salman to increase production by 1 million barrels per day. At the moment, the company extracts 12 million barrels per day, roughly 12% of global demand.
Crude oil is currently traded at $78 per barrel, lower than the $81 average of 2023. In recent months, global oil prices dropped despite rising tensions in the Middle East. Even though the Houthis in Yemen are targeting oil vessels passing through the Bab El Mandeb Strait, global oil production rose enough to counter a sudden spike in prices.
Some members of the Organization of Petroleum Exporting Countries (OPEC), including Iraq and Angola, decided to increase production in the last quarter of 2023.
On the other hand, Saudi Arabia had colluded with Russia to decrease overall production by 1.6 million barrels per day. When this decision was announced in 2022, it sent oil prices above the $90 threshold.
Indeed, experts predict oil demand will decrease in 2024 and rise again in the second half of the decade. As of today’s decision, however, Saudi Arabia will not raise oil production together with demand and will remain at the current level.
Polluting with zero emissions
Oil demand is projected to go up in the second half of the decade because of the increased popularity of electric vehicles. EVs will demand fresh energy production, and experts predict it will mostly come from fossil fuels.
Nevertheless, Saudi Aramco pledged to reach net zero emissions in its operations. According to the company, oil will be extracted without added emissions, but whatever it’s done with that oil is up to the purchasing firm.
For these reasons, Saudi Aramco received orders to increase oil production by 2027. Of course, this operation would have required more investments in the company’s operations.
According to some experts, Saudi Arabia’s backtrack on this decision might come from a realization that oil demand will, in fact, not increase at all. The kingdom might have realized the costs of this increase overcome the profits, especially when factoring in the price decrease it would entail.
In the short term, this change of mind will likely increase global oil prices. In the United States, such an increase is likely to have ripple effects in politics, especially during an election year.
