Global oil demand and Saudi Arabia’s strategic recalibration
Will global oil demand continue rising sharply in the coming years, as major producing countries argue, or will it follow the trajectory projected by the International Energy Agency (IEA), which expects demand to peak around 2030?
The question gains new relevance following Saudi Arabia’s unexpected decision to cancel the expansion of Saudi Aramco’s production capacity.
Riyadh’s decision and its impact on global oil demand
Saudi Aramco announced it had received a directive from the Ministry of Energy to maintain its maximum sustainable capacity at 12 million barrels per day (mbpd), instead of increasing it to 13 mbpd as previously planned.
As recently as November, ahead of COP28 in Dubai, Aramco had confirmed plans for a multi-billion-dollar expansion that would have lifted the Kingdom’s production capacity to 13 mbpd by 2027. The move was justified by expected increases in global oil demand, particularly driven by India and China.
Currently, Saudi Arabia produces around 9 mbpd, having reduced output under the OPEC+ agreement aimed at supporting crude prices and preventing oversupply.
Strategy or tactical adjustment?
Behind Riyadh’s decision may lie more tactical considerations than long-term strategy.
Saudi Arabia requires an oil price of roughly $108 per barrel to balance its budget, where petroleum revenues remain the dominant source of income despite diversification efforts. Brent crude currently trades closer to $80 per barrel.
Freezing expansion plans could signal tighter supply expectations and influence market sentiment. Saudi Arabia remains the only global producer with significant spare capacity (the ability to quickly raise production to absorb supply shocks).
Reducing spare capacity effectively increases market sensitivity to geopolitical disruptions, such as maritime instability in the Red Sea linked to regional spillovers from the Gaza conflict.
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