Saudi Arabia reportedly plans to increase oil output – Commerzbank

As the Financial Times reported, citing sources with knowledge of the matter, Saudi Arabia plans to drop its unofficial target price of $100 per barrel, allowing it to increase oil production. There is no officially announced price target, notes Carsten Fritsch, commodities analyst at Commerzbank.

The phasing out of voluntary production cuts appears likely

“According to IMF calculations, Saudi Arabia needs an oil price of almost $100 to balance the national budget. Due to production cuts and the resulting reduction in export volumes, the asking price continued to rise. Saudi Arabia is no longer willing to cede market share to other producers and also has enough alternative financing options to weather a period of low oil prices. Thus, a gradual withdrawal of voluntary production cuts from early December appears likely.”

“Two OPEC+ sources said yesterday that the planned production increase will continue. For Saudi Arabia, we are talking about 1 million barrels per day; for OPEC+ as a whole, 2.2 million barrels per day. Because some countries, such as Iraq and Kazakhstan, did not cut production as agreed, the actual increase in production is likely closer to 1.6-1.7 million barrels per day.”

“If this amount does indeed gradually enter the market from December, the oil market will potentially face a considerable oversupply in the coming year. The price of oil would react to this with another drop in price. Then there would be downside risks to our $80 oil price forecast for next year.”