Saudi Arabia is willing to endure short-term oil price and revenue pain as it is making a U-turn in policy and going to take back market share and ditching its unofficial $100 oil price target, the Financial Times reported on Thursday, quoting sources with knowledge of the latest Saudi thinking.
The world’s top crude exporter and leader of OPEC, Saudi Arabia, and its allies in the OPEC+ group have been withholding oil supply for over a year, in a bid to balance the market and prop up prices.
The OPEC+ alliance initially planned to begin unwinding part of the production cuts from October this year. However, after oil prices crashed in late August and early September, OPEC+ delayed the beginning of the unwinding of 2.2 million barrels per day (bpd) of cuts by two months until December 2024.
The decision did little to lift oil prices—the market was half expecting a delay, especially after OPEC cut in August its global oil demand growth view citing weakness in China.
In its monthly report for September, OPEC further trimmed its demand growth outlook and further weighed on oil prices and market sentiment.
In just two months, demand worries have flipped the bullish view of traders and speculators to the most bearish positioning in petroleum futures in recorded history since 2011.
Despite the weak market sentiment and uncertainty about whether the massive Chinese stimulus from earlier this week would boost China’s oil demand, Saudi Arabia is determined to begin unwinding the cuts as of December 1, according to FT’s sources.
This latest thinking suggests that the Kingdom has come to accept that it would have to endure a period of lower oil prices if it wants to take market share back.
For more than a year, Saudi Arabia has been pumping about 9 million barrels per day (bpd) of crude and has been strictly sticking to this target. But it has cost it market share not only from non-OPEC+ producers but also from such within OPEC and the OPEC+ group.
Following FT’s report that the Saudis are determined to bring back production in December regardless of market balances and prices, oil reversed earlier gains on Thursday and crashed by over 3% in early European trade.
By Tsvetana Paraskova for Oilprice.com
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