Amid Saudi Arabia’s dramatic cut in oil prices, energy giant Saudi Aramco now plans to raise its crude production capacity by a million barrels per day to 13 million bpd. In a statement to the Saudi Stock Exchange, Aramco announced that it has received a directive from the Ministry of Energy to increase its maximum sustainable capacity from 12 million bpd to 13 million bpd.
The decision to increase the production comes at a time when a major fallout between the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and Russia, on production cuts, brought carnage in the global market. OPEC wanted Russia to join them in large production cuts in the wake of the novel coronavirus outbreak which has impacted the oil demand.
However, Russia refused to oblige OPEC which severed the three-year alliance aimed at supporting the price. Saudi retaliated with slashing the prices of crude oil by nearly 10 per cent on Match 8 which caused a bloodbath in the share market. Mounting worries over coronavirus and dramatic price cuts of crude oil brought a domino effect on March 9 and S&P 500 dived nearly seven per cent triggering a circuit breaker that halted trade for 15 minutes.
Saudi’s strategy to dominate the share by slashing the price and increasing production can immensely impact Russia and its allies, especially oil-dependent economies like Iran, which is already facing severe economic sanctions from the United States. There has not been any clarity on when the capacity increase would take place.
In December last year, Saudi Aramco became the most valuable listed company in history after it raised $25.6 billion at the initial public offering (IPO) in a day at Riyadh's Tadawul stock exchange. The public offering was the part of the Crown Prince Mohammed bin Salman’s plan to diversify its funds into non-energy industries like tourism and entertainment. In 2016, Crown Prince had floated the idea for raising as much as $100 billion through a public offering.
(With agency inputs)