Because of the unexpected U-turn in Saudi Arabia's policy to expand production capacity, oil service stocks in the Middle East and Europe and the United States were mourning on Tuesday.
Saudi Aramco, the energy giant owned by Saudi Arabia, announced on Tuesday that it had received instructions from the Saudi Ministry of Energy to maintain its maximum sustainable capacity (MSC) at 12 million barrels per day and not continue to expand to 13 million barrels per day, and said that it would announce its 2023 financial results in March 2024, and update the company's capital expenditure guidance in accordance with the latest ** instructions mentioned above.
After Saudi Aramco's announcement of the cessation of production expansion, a number of oil and gas stocks in the Middle East, Europe and the United States fell sharply. In the Middle East, Saudi ades holding co（ades.AB) closed down about 10%, and the data showed that the ** ended the day's trading less than half an hour after opening. arabian drilling co.Closed down 920%, Saudi Aramco (AramcoAB) closed down 048%, holding steady near the lowest level since April 16, 2023.
Among European stocks, Oslo-listed Borr Drilling in Norway closed down 1165% and Shelf Drilling closed down 1234%, Subsea 7 SA fell 49%, Italy's Milan-listed Saybom (SPMIM) closed down 1272%, Turner shares (tenIM) closed down 200%, Paris-listed Vallourec Group (VKFP) closed down 626%, Frankfurt, Germany-listed Salzgitter (SZGGR) closed down 076%。
In the United States, the Philippadelphia Oil Service Sector Index (OSX) fell 52%, the most moderate decline since October 4, 2023, closed down 19%。Weatherford International (WFRD) fell more than 16% at one point, Schlumberger (SLB) fell about 10% intraday, National Oil Well Huagao (NOV) fell nearly 9%, and Haliburton (HAL) fell more than 5% before finally closing down. 5% and 1%.
Aramco's latest announcement means that Saudi Arabia's plans to expand production capacity, which have lasted for more than two years, have been abruptly halted. Saudi Arabia currently has a production capacity of 12 million barrels per day and about 9 million barrels per day. Saudi Aramco said in 2021 that it was working to expand its capacity to 13 million barrels per day, with the goal of achieving that capacity expansion in 2027.
In November 2023, Aramco also said that Aramco's multibillion-dollar project, which aims to increase production capacity to 13 million barrels per day, is progressing "very well" as demand from China and India continues to grow. At the time, Saudi Aramco CEO Amin Nasser said that while some called for a halt to the development of new projects, the energy industry still needed to invest upstream to avoid a global energy shortage.
Earlier this month, Nasser said at the Global Economic Forum in Davos that he expects the oil market to be tight, as consumers have depleted 400 million barrels of inventories over the past two years, and while oil demand is still growing, OPEC's spare capacity will be the main extra.
* noted that Aramco's change in investment plans coincided with a significant increase in the company's dividend payout. Saudi Arabia** faces a fiscal deficit as it spends tens of billions of dollars in its efforts to diversify its economy into areas such as sports and tourism.
Traders had previously expected a buffer on global oil supplies later in the decade to 2030, and Saudi Arabia's decision would cause a large part of that expected buffer to disappear, and that it would be difficult for other countries to fill the gap left by Saudi Arabia. Maintaining new capacity constraints is costly when domestic production is well below the maximum capacity level and demand growth is likely to slow due to the transition to green energy.
Biraj Borkhataria, an analyst at RBC Capital Markets, believes that there may be a lot of speculation in the market about the potential impact of Saudi Arabia's move on global oil demand in the medium to long term. The move also marks a change in the attitude of Saudi Arabia, one of the world's largest oil producers, at the ** level.
Borkhataria expects Aramco's updated capex budget to be reduced by approximately $5 billion per year over the next few years compared to its previous guidance.
Some commentators believe that despite the long-term large-scale production cuts implemented by OPEC+ countries such as Saudi Arabia, the international market is still stubbornly in the range, which may be the reason for the revocation of the production expansion order issued by Saudi Arabia, and of course, it may also be due to the change in the long-term outlook for oil demand in Saudi Arabia.