Saudi Arabia sought to put fresh pressure on the oil price by instructing state oil company Saudi Aramco to increase its maximum production capacity to 13m barrels a day.
Saudi Aramco oversees 12m barrels of the kingdom’s 12.5m b/d total production capacity — the maximum Opec’s largest producer is able to pump each day.
The statement by the company to the Tadawul stock exchange said it had received a directive from the energy ministry and comes a day after the kingdom said it would supply the market with 12.3m b/d, escalating an oil price war.
Saudi Arabia on Saturday slashed its export prices after Russia refused to deepen and prolong joint supply curbs with Opec, believing the cuts only subsidised the US shale industry.
The failure to agree on a production deal in response to the demand-sapping coronavirus outbreak has led to the effective collapse of an oil alliance that has been in place for the past three years.
Russia said on Tuesday it could also increase its production, and Wednesday’s announcement from Saudi Arabia marks the latest salvo in a tit-for-tat battle.
Oil prices posted one of the biggest one-day falls in history on Monday, with Brent crude dropping as low as $31.02 a barrel. On Wednesday morning Brent crude was trading at $36.90 a barrel.
Saudi Aramco’s share price has also taken a hit in recent days, falling below last year’s initial public offering price, to as low as SAR 28.35.
Saudi Arabia has long said it can produce 12m b/d on a sustained basis, although oil analysts say the level is lower at about 11m b/d. Saudi Aramco did not say how long it would take to increase capacity to 13m b/d.
The kingdom has spent decades investing in its spare production capacity, traditionally used for unleashing more barrels on to the market when shortages emerge because of short-term disruptions.
It is now using its vast oil reserves to fight for market share and to show its rivals the extent of the kingdom’s energy prowess. Increasing production capacity further will probably require billions of dollars in capital spending, not only in how the company manages its reserves but also how it processes and exports oil.
For investors, the announcement is yet another reminder of how Saudi Aramco is an arm of the state despite seeking to be portrayed as just like any other international oil major ahead of its stock market listing last year.