Oil prices slide as report claims Saudi Arabia is gearing up to boost output

Officials in the kingdom 'are committed to bringing back' production as planned on December 1, according to Financial Times

Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman. The kingdom is reported to be planning to ramp up oil output. EPA

Oil prices fell on Thursday after a report claimed Saudi Arabia is ready to abandon its unofficial $100 a barrel target as it prepares to boost production.

Brent, the benchmark for two thirds of the world's oil, was trading 2.1 per cent lower at $71.86 a barrel at 1.32pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 2.2 per cent at $68.14 a barrel.

Officials in the kingdom “are committed to bringing back that production as planned on December 1, even if it leads to a prolonged period of lower prices”, the Financial Times reported on Thursday, citing officials.

The International Monetary Fund said in April that Saudi Arabia, the world's largest oil exporter, would require oil prices at almost $100 to balance this year's budget.

However, the kingdom has determined that it will not continue to lose market share to other oil producers, the officials said, according to the Financial Times.

The officials also said that Saudi Arabia believes it has sufficient alternative funding options to withstand a period of lower prices, including tapping into foreign exchange reserves or issuing sovereign debt.

Saudi Arabia and seven other Opec+ members were set to ease voluntary production cuts of 2.2 million barrels per day starting next month. However, the supply curbs were extended until the end of November amid a drop in crude prices and slumping global demand.

Despite the group's decision, Brent briefly fell below $70 a barrel earlier this month – the lowest since December 2021 – as slowing economic growth in China and the US raised concerns about fuel demand. UBS forecasts that Brent crude will return to $80 per barrel and that global oil supply will remain insufficient for the remainder of 2024.

Oil supply growth from Opec+ and non-Opec+ has been modest since December, keeping the oil market in deficit, the Swiss lender said in a research note on Thursday.

“We expect the oil market to stay undersupplied this year. Meanwhile, monetary stimulus measures by key central banks should support economic and oil demand growth next year. With likely further oil inventory declines ahead, we retain our positive price outlook,” UBS said.

On Wednesday, the Organisation for Economic Co-operation and Development said it expects global economic growth to stabilise at 3.2 per cent for 2024 and 2025, with “further disinflation, improving real incomes, and less restrictive monetary policy” in many economies helping underpin demand.

“Persisting geopolitical and trade tensions could increasingly damage investment and raise import prices. Growth could slow more sharply than expected as labour markets cool … on the upside, the recovery in real incomes could provide a stronger boost to consumer confidence and spending, and further oil price declines would hasten disinflation,” the OECD said.

Last week, the Federal Reserve cut US interest rates by 50 basis points, marking the start of its first easing cycle in four years to protect the labour market.

The Federal Open Market Committee reduced its benchmark lending rate from 5.25-5.50 per cent to 4.75-5.00 per cent.

On Tuesday, China, the world's second-largest economy and top crude importer, unveiled its largest economic stimulus package since the pandemic, which included a reduction in its short-term interest rate and a lowering of mortgage rates for existing housing loans.