Macquarie strategists and BofA analysts have weighed in on Saudi Aramco’s announcement Tuesday that it has acquired a directive from Saudi Arabia’s Ministry of Vitality “to keep up its most sustainable capability (MSC) at 12 million barrels per day and to not proceed growing MSC to 13 million barrels per day”.
“Whether or not it is a shorter-term pause or longer-term departure from the prior plan to extend capability to 13 million barrels per day seems unclear,” Macquarie strategists famous in an oil and fuel report despatched to Rigzone late Tuesday.
“Whereas we anticipate no scarcity of hypothesis round long-term implications with respect to ESG pressures or demand trajectories as a operate of this announcement, we hesitate to make such far-reaching conclusions at current,” they added.
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Within the report, the strategists outlined that the corporate’s capability growth plans “have appeared fairly credible, and never merely present in high-level bulletins”.
“As lately as Q3 outcomes, Aramco highlighted the Marjan and Berri tasks, every with substantial capability and anticipated startup by 2025,” the strategists added.
“But, these very tasks (and Saudi Arabia’s broader capability growth effort) have appeared at odds with a lately restrictive manufacturing coverage that has seen Saudi Arabia minimize oil to 9 million barrels per day,” they continued.
“For now, it seems the growth program has yielded to Saudi oil market coverage in resolving this incongruity. This dilemma has been obvious to us, however the method of decision is nonetheless a shock,” they went on to state.
The Macquarie strategists famous within the report that this choice could give Saudi Arabia “a bit extra freedom to keep up a restrictive output coverage past Q1 2024”.
The strategists highlighted within the report that, of their base case, they assume Saudi Arabia’s voluntary a million barrel per day minimize reverses progressively throughout the second and third quarters.
“Whereas we view discrete Saudi manufacturing selections as successfully unforecastable, the continued capability program (alongside different objects) has underpinned our expectation for an eventual Saudi return to 10 million barrels per day,” they said within the report.
“But, in our balances, this anticipated return of Saudi provide produces a significant full yr 2024 surplus. On this sense, we don’t see an oil market sorely wanting for added Saudi provide,” they added.
The Macquarie strategists stated within the report that, “throughout each a close to and medium-term perspective”, they “proceed to see a succesful and responsive international upstream, notably exterior of OPEC and in the US”.
“Once more, whereas little element has been supplied surrounding this announcement, 2025 already seemed to be a yr of strong lengthy lead-time undertaking supply within the offshore, excluding Saudi Arabia,” they added.
“Additional, we search for the U.S. to exit 2024 at ~14 million barrels per day of oil manufacturing. Whereas we stay hesitant to invest on motivations for this choice, inside it, we see potential acknowledgment of a firmer international provide image than has been broadly appreciated,” the strategists went on to state.
In a BofA World Analysis report despatched to Rigzone on Wednesday, BofA analysts highlighted that Aramco’s MSC improve to 13 million barrels per day was anticipated to finish in 2027.
“The choice to cancel the capability improve in our view, could possibly be pushed by – 1) Aramco’s present spare capability of circa three million barrels per day and opaqueness round when manufacturing will improve, 2) longer-term oil demand outlook, 3) the significance of Aramco to Saudi’s fiscal place with potential capex discount being directed in direction of a rise in dividends,” the analysts famous within the report.
The event of the Dammam, Berri, Marjan, and Zuluf fields, which have handed ultimate funding choice, will proceed, the BofA World Analysis analysts identified within the report.
“By way of infill drilling, the corporate will management manufacturing capability in every of those fields, which can assist offset pure declines throughout different fields and ultimately assist the corporate keep its MSC of 12 million barrels per day,” they added.
“Since Aramco will proceed to spend for improvement of those fields, at this stage [it] is tough to forecast the influence of capex discount resulting from cancellation of the MSC improve. Safaniya (700,000 barrel per day capability, world’s largest offshore oil discipline) is the one massive discipline of Aramco’s MSC growth plan awaiting FID, which is now more likely to be deferred due to the announcement,” they continued.
“Upstream reported final week that Aramco had began tendering EPCI (Engineering, Procurement, Development and Set up) contracts price $10 billion for the undertaking, whereas Woodmac has reported complete capex of $26 billion,” the analysts went on to notice.
To contact the creator, e mail andreas.exarheas@rigzone.com
