Saudi Arabia is ready to abandon the $100 gross target to regain market share

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Saudi Arabia is poised to ditch its unofficial $100-a-barrel price target for crude oil as it prepares to increase output, in a sign the kingdom is resigned to a period of falling oil prices, according to people familiar with the country’s thinking. .

The world’s biggest oil exporter and seven other members of the OPEC+ producer group had been due to reverse long-standing production cuts since early October. But a two-month delay has fueled speculation over whether the group will ever raise output, with Brent earlier this month briefly falling below $70 to its lowest level since December 2021.

However, officials in the kingdom have pledged to bring that production back as planned on Dec. 1, even if it leads to a prolonged period of lower prices, the people said.

Saudi Arabia’s Energy Ministry did not respond to a request for comment.

The change in thinking represents a major shift in direction for Saudi Arabia, which has led other OPEC+ members to repeatedly cut output from November 2022 in a bid to keep prices high.

Brent crude, the international benchmark, had averaged $99 a barrel in 2022, the highest level in eight years, as the fallout from Russia’s invasion of Ukraine roiled markets, but has since fallen.

Increased supply from non-OPEC producers, particularly the US, and weak demand growth in China have reduced the impact of the group’s cuts over time. Brent has averaged $73 a barrel so far in September, even as Israel’s war with Hamas in Gaza has threatened to escalate into a wider regional conflict.

Saudi Arabia needs an oil price of nearly $100 a barrel to balance its budget, according to the IMF, as Crown Prince Mohammed bin Salman seeks to finance a series of megaprojects at the heart of an ambitious economic reform program.

However, the kingdom has decided it is not willing to continue to cede market share to other manufacturers, the people said. It also believes it has enough alternative financing options to weather a period of lower prices, such as tapping foreign reserves or issuing sovereign debt, they added.

A decade ago, Saudi Arabia ended the era of $100-a-barrel oil, increasing production as prices fell in 2014 in an effort to counter the rapid rise of the US shale industry.

More recently, under Energy Minister Prince Abdulaziz bin Salman, the kingdom has sought to maximize revenue by cutting production to support prices.

However, the policy has at times inflamed tensions with the US, which has tried and failed to get Riyadh to increase output in 2022 after Russia’s invasion of Ukraine sent prices soaring.

Saudi Arabia has borne most of the OPEC+ cuts so far, cutting its own output by 2 million barrels per day over the past two years, accounting for more than a third of cuts by members.

The kingdom is currently pumping 8.9 million b/d, the lowest level since 2011, barring the coronavirus pandemic and the 2019 attack on the state oil company’s Abqaiq processing facility.

Under the delayed plan to begin unwinding the cuts, Saudi Arabia will increase its monthly output by an additional 83,000 b/d each month from December, increasing output by a total of 1 million b/d by December 2025.

A key frustration for Saudi Arabia was that several cartel members, including Iraq and Kazakhstan, partially ignored the cuts, pumping more than their respective quotas.

OPEC Secretary General Haitham Al Ghais visited both countries in August and extracted pledges to adjust their future production plans to make up for the past surplus.

But Saudi Arabia remains concerned about compliance and could decide to reverse its own cuts sooner than planned if neither country meets the cap, one of the people added.