On Wednesday, Saudi Arabia initiated its new energy play by directing the kingdom’s oil company Aramco to increase its maximum production capacity, while Abu Dhabi’s oil and gas company ADNOC followed suit by saying it was boosting output by 25% to 4 million barrels per day.
Abu Dhabi’s decision to increase production comes after Saudi Arabia took steps to essentially flood the market to dominate a greater share, after major oil producer Russia refused to go along with more production cuts. Meanwhile, global demand for oil is slowing down due to the outbreak of a new virus that’s hampered travel and business.
Saudi Arabia said this week it would increase its crude oil production to 12.3 million barrels a day starting in April. That’s 300,000 barrels per day more than Aramco’s current maximum sustained capacity.
Aramco did not say when that capacity increase would happen, according to Wednesday’s announcement on the Saudi Tadawul stock exchange. Late last year, the company floated 1.7% of its shares on the Tadawul, raising nearly $30 billion in the largest IPO in history.
Aramco said the decision was a directive from the Saudi Energy Ministry. The kingdom’s energy policy is largely directed by Crown Prince Mohammed bin Salman and the country’s Energy Minister Prince Abdulaziz bin Salman.
Abu Dhabi’s ADNOC on Wednesday said it was responding to current market conditions and would increase output from about 3 million barrels to over 4 million barrels of oil a day starting next month. In addition, the company said it will accelerate plans for its 5 million barrel per day production capacity target.
By increasing output and production, and slashing its official selling prices to Asia, analysts say it appears Saudi Arabia is now looking to pressure Russia by dominating market share, since it was unable to secure market price.
