Saudi Arabia is about to abandon its unofficial target of keeping oil prices around $100 a barrel as it prepares to increase production from December 1. The country seems to accept the possibility of lower raw material prices, reports The Financial Times, quoted by Focus.
The kingdom's original plans were to start the production increase in October, but the two-month delay has given rise to various speculations. At the same time, the price of Brent oil fell to levels below $70 per barrel, the lowest level since December 2021.
Nevertheless, Riyadh plans to start increasing production in December, even if it leads to a longer period of low oil prices.
This policy change is significant for Saudi Arabia, which in recent years, along with other OPEC+ members, has regularly cut output to keep prices high.
The average price of Brent oil for 2022 was $99 per barrel – the highest level in eight years, largely because of geopolitical tensions caused by the war in Ukraine. However, non-OPEC oil supply, especially from the US, as well as reduced demand from China, gradually put pressure on prices.
Saudi Arabia needs a price around $100 a barrel to maintain a balanced budget and finance the ambitious megaprojects of Crown Prince Mohammed bin Salman, the IMF says.
However, the kingdom is unwilling to continue losing market share to other manufacturers. Saudi Arabia believes it has enough other financial sources to weather a possible period of lower oil prices.
It is important to note that the country has absorbed a significant portion of OPEC+ production cuts, cutting production by two million barrels per day over the past two years – more than a third of the total layoffs in the organization.
Saudi Arabia currently produces 8.9 million barrels per day – the lowest level since 2011. Under the new plan, the country will increase production by 83,000 barrels per day from December and gradually reach a total increase of one million barrels per day by the end of 2025.