Saudi Arabia to pump more oil into price war

DUBAI, United Arab Emirates — Saudi Arabia steamed ahead on Wednesday with its new energy play by directing Aramco, the kingdom’s oil company, to increase its maximum production capacity on Wednesday, while Abu Dhabi’s oil and gas company ADNOC followed suit by saying it was boosting output from 3 million 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 the new coronavirus 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. Now the company says it is boosting that output capacity to 13 million barrels a day, giving the kingdom greater maneuverability.

Aramco said the decision was a directive from the Saudi Energy Ministry.

Saudi Arabia has been producing around 9.8 million barrels per day, carrying the bulk of cuts that were agreed upon by OPEC members and other major oil producers, namely Russia, to stave off an oversupply in the market that would further push prices down.

Over the weekend, the kingdom’s strategy dramatically pivoted when Russia refused to cooperate on further and deeper production cuts. It was expected that other OPEC member-states would follow suit and increase production in response to Saudi Arabia’s moves.

Analysts say it appears Saudi Arabia is now looking to pressure Russia by dominating market share, since it was unable to secure market price.

The price war pushed the price of crude down 25% on Monday, the sharpest decline seen since the 1991 Gulf War.

The price of international benchmark Brent crude recovered some on Tuesday and was trading around $36 a barrel on Wednesday.