Saudi Arabian flag with stock graph and an oil pump jack miniature model on Oct. 9, 2023.Dado Ruvic/Reuters
Saudi Arabia is preparing to abandon its unofficial $100 a barrel oil price target as it gets ready to raise output to win back market share, even if it means lower prices, the Financial Times reported on Thursday.
The Organization of the Petroleum Exporting Countries (OPEC), which is de facto led by Riyadh, has been cutting oil output to support prices along with allies including Russia, who are together known as OPEC+.
However, prices are down nearly 5 per cent so far this year, amid increasing supply from other producers, especially the United States, as well as weak demand growth in China.
Earlier this month, OPEC+ agreed to delay a planned oil output increase for October and November after crude prices hit their lowest in nine months, saying it could further pause or reverse the hikes if needed.
The FT, citing people familiar with Saudi thinking, reported that Saudi Arabia is committed to the group raising production as planned on Dec. 1, even if that means a longer period of low oil prices.
Global crude benchmark Brent was down about 1.7 per cent to $72.25 at 1031 GMT following the FT report.
The Saudi government’s communications office did not immediately return a request for comment.
The market share of OPEC+, formed in late 2016, has slipped to all-time lows after output cuts since 2022 and supply increases by the U.S. and other producers, according to the International Energy Agency.
OPEC+ oil output is equal to 48 per cent of world supply, according to Reuters calculations based on IEA figures. Saudi Arabia’s crude output is below 10 per cent of the world market, while U.S. oil output has risen to 20 per cent of world supply.
Saudi Arabia has decided that it will not continue to cede market share and believes it has enough funding options, including foreign reserves and debt, to withstand a period of lower prices, the FT said.
The kingdom, the world’s top oil exporter, has shouldered a large share of OPEC+ output cuts, reducing its own output by about 2 million barrels per day (b/d) since late 2022.
OPEC+ members are currently cutting output by a total of 5.86 million b/d, equivalent to about 5.7 per cent of global oil demand.
Saudi Arabia has in the past increased production to defend its market share and in 2020 engaged in a price war with Russia.
Both flooded world markets with oil after Moscow refused to support OPEC’s decision to make deeper output cuts to deal with the fallout from the COVID-19 pandemic.
Riyadh in 2014 blocked calls by some OPEC members to make output cuts to halt a slide in oil prices, setting the stage for a battle for market share between OPEC and non-OPEC producers amid a boom in U.S. shale production.
OPEC and Saudi Arabia have repeatedly said they do not target a certain oil price and make decisions based on market fundamentals and in the interest of balancing supply and demand.