(Bloomberg) –Saudi Arabia surprised the oil market with deeper production cuts, sending crude prices soaring and predicting that Aramco, fresh from its initial public offering, will soon surge past the elusive $2 trillion valuation.
After two days of grueling talks in Vienna that had focused on adjusting the OPEC+ quota and redistributing output cuts more equitably, Energy Minister Prince Abdulaziz bin Salman sent prices soaring with the promise to take the kingdom’s production down to levels not seen on a sustained basis since 2014, according to data compiled by Bloomberg.
Oil jumped as much as 2.4% to $59.85 a barrel as of 10:09 a.m. in New York. Prince Abdulaziz also predicted that Saudi Aramco, which just completed an IPO at a valuation of $1.7 trillion, would soon soar above the $2 trillion long coveted by his brother, Crown Prince Mohammed Bin Salman.
”Aramco will be higher than the $2 trillion, and they can bet that this will happen,” Prince Abdulaziz said. The state-controlled company, of which shares start trading on Dec. 11, would reach that valuation “in a few months,” he said.
Aramco didn’t immediately respond to a request for comment about the minister’s prediction.
While a surprise, the move wasn’t unprecedented. Three years ago in the same press room of the OPEC Secretariat in Vienna, Prince Abdulaziz’s predecessor as energy minister, Khalid Al-Falih, dropped a bombshell on the market by promising to cut substantially below the level it had just agreed with fellow members.
OPEC+, which pumps more than half the world’s oil, agreed in Vienna on Friday to reduce its output target by 500,000 barrels a day. The deal was initially dismissed by analysts as “housekeeping” or a “nothing-burger” because it simply brought the group’s production limit in line with recent levels.
But the Saudi delegation had something else up its sleeve, having made extra efforts to conceal its plans through days of meetings with hundreds of reporters, consultants and oil traders watching every move. Inside the conference room of the Organization of Petroleum Exporting Countries’ secretariat, Prince Abdulaziz asked fellow ministers to maintain complete secrecy on what they were discussing.
At the closing press conference for the meeting, with oil prices slightly down on the day, the minister revealed the “beautiful news” he’d hinted to reporters was coming.
“We will continue the voluntary cut of 400,000” barrels a day below Saudi Arabia’s official output target, he told reporters in Vienna on Friday. That will bring the total supply cut implemented by OPEC and its allies to 2.1 million barrels a day, he said.
The kingdom plans to pump 9.7 million barrels a day, he said. That’s a reduction of about 300,000 barrels a day from its output in November and 100,000 below the year-to-date average, according to data compiled by Bloomberg.
Saudi Arabia is cutting production because the oil market faces a tricky period early next year. Demand growth is slowing and another big expansion in rival production is coming down the pipeline. Together those factors could create another oversupply that drives international prices back down toward $50 a barrel.
That’s too low for most OPEC members to balance their budgets, and would make an unfortunate epilogue for the record-breaking initial public offering of Saudi Arabia’s state oil company, which set the final price of its shares on Thursday.
Prince Abdulaziz did warn, however, that Saudi Arabia’s voluntary extra cuts were conditional on other OPEC countries meeting their own production targets in full. Over the past year, several nations, including Iraq, Nigeria and Russia have consistently exceeded their quotas.
To show he meant business about bringing this cheating to an end, Prince Abdulaziz’s opening speech focused on the peril’s of breaking the market’s trust, using religious references to underscore his point. His final press conference was unusually attended by the ministers of Iraq and Nigeria, who promised to stop over producing.
–With assistance from Grant Smith, Laura Hurst, Golnar Motevalli and Salma El Wardany.