The government may want to free up money to spend on Crown Prince Mohammed bin Salman’s ambitious development plans, as well as on alternative sources of energy like natural gas and hydrogen. Aramco said it had received instructions to dial back expansion from the ministry of energy, which is run by Prince Abdulaziz bin Salman, the older half brother of the crown prince.
Reducing future capacity at a time of growing tension in the Middle East could create worries, but the Saudi move does not mean that there will be a drop in oil volumes anytime soon, analysts say. At the moment, Aramco is producing about 3 million barrels a day less than it can.
Still, Mr. Beveridge said reduced investment in capacity was “bullish” for oil prices. He also said that the Saudis may be sending a signal to close allies like the United Arab Emirates and Kuwait that they should back off on their own expansion plans.
Oil prices, however, fell slightly in trading on Tuesday.
Certainly, recent experience argues against a major investment in producing more oil. Saudi Aramco has been investing billions to expand output, but the company has not been able to pump anywhere near its stated capacity of about 12 million barrels a day.
That is because as leaders of OPEC Plus, the producers group, the Saudis have been holding their output to about 9 million barrels a day in order to shore up prices.