Oil Prices Could Be Headed Lower as Saudi Arabia Moves to Increase Production

The U.S. fracking industry is in shambles and is producing about 3 million barrels of oil less per day than it was before the pandemic. With oil prices hovering in the low $40s, producers from West Texas up to North Dakota can’t make money. That’s just the way that Saudi Arabia and other OPEC members want it, and they’re looking to increase the pain.

Saudi Aramco plans to boost crude output capacity by 1 million barrels per day (bpd) to 13 million bpd.

Amin Nassar, President of Saudi Aramco, said:

“We are proceeding with increasing our MSC (maximum sustainable capacity) from 12 to 13 million barrels… it should not have a major impact on capital in 2021.”

The company acknowledges that it will be increasing global oil supply by one million bpd in the face of lower demand, but it’s not deterred. The goal is to mop up market share as other suppliers, namely in the U.S., go out of business because they can’t survive with oil prices at these levels. Saudi Arabia is betting that sidelined producers or even new producers won’t be able to start production up quickly when the market turns higher.

While this might be bad for U.S. oil producers, it’s good for consumers, as we should enjoy lower gas prices in the months ahead.

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