Saudi Arabia’s Decision to Cut Capacity Expansions Signals Less Demand for Saudi Crude

Saudi Arabia’s announced to halt plans to expand its oil capacity expansion from 12mbpd to 13mbpd by 2027 signals that space for more Saudi crude oil in the market is limited, HSBC said in a note.

• The bank’s S/D model suggests that OPEC has no room to fully unwind its cuts and put onstream its supply increments in the next five years. The decision to halt future expansions makes sense in this context, the bank said.
• OPEC’s ability to influence the oil market has been narrowing due to ample oil capacity in the medium term. OPEC-9 spare capacity should decline from 5.3-5.4mbd in 1Q24 to 4.1mbd by year-end, which is still above the historical average.
• In the longer-term, the outlook for OPEC’s spare capacity looks tighter after the decision to halt the expansion, which should be somewhat supportive for mid-cycle oil prices.