Oil price falls as Saudi Arabia abandons $100-a-barrel target

More than £10 billion was wiped off the stock market value of Britain’s two oil supermajors after reports that Saudi Arabia is preparing to abandon its unofficial $100-a-barrel target for oil prices.
BP and Shell tumbled to the bottom of the FTSE 100 share index after reports from the Gulf sent the price of Brent crude down sharply by 2.5 per cent towards $71 a barrel.
Shell’s shares dropped by 117p, or 4.6 per cent, to £24.15 and BP lost 16½p, or 4.1 per cent, to 383¾p, sinking while the FTSE 100 itself had an otherwise strong day, lifted by optimism about a recovery in China’s stuttering economy.
The sell-off in the sector came after signals that the world’s largest oil exporter is preparing to increase its oil output, with officials reconciled to an era of lower prices.
Energy companies enjoyed bumper profits after oil prices soared in the aftermath of the pandemic, from lows of $20 a barrel in the depths of the Covid outbreak in 2020 to almost $120 when Russia invaded Ukraine in 2022. The oil price has slipped back since then, with the United States increasing its production, amid subdued demand from China and despite fears over the threat of escalation in the Israel-Hamas war into a regional conflict.
The International Monetary Fund has calculated that Saudi Arabia needs the oil price to hold at about $100 a barrel to balance its budget and to fund a series of multibillion-dollar projects intended by Crown Prince Mohammed bin Salman, the prime minister of the country, to diversify its petrostate economy toward tourism, technology and manufacturing.
The kingdom and other members of the Opec+ group of producers have eased their production since 2022 in a co-ordinated effort to tighten supply and maintain the oil price. Saudi Arabia lowered its production by two million barrels a day, accounting for more than a third of the reduction.
The agreement, however, is understood to be faltering, with Riyadh now planning to step up production from December to shore up its market share. The Financial Times cited sources suggesting that it would boost output by a total of a million barrels a day by December 2025.
Delegates from Libya’s divided east and west regions have agreed on a process of appointing a central bank governor, according to United Nations advisers, a step that could help to resolve turmoil over control of oil revenue that has driven down the country’s oil exports from more than a million barrels per day to about 400,000.
Analysts suggest that a combination of rising volumes and seasonally lower demand could lead to a considerable oil surplus in the first quarter of 2025, pushing prices down further.
Kim Fustier, head of European oil and gas research at HSBC, said the latest reports coming from Saudi Arabia “seem to support our view that Opec+ has miscalculated repeatedly, now realises it and wants to gain back market share”.
Among Europe’s oil majors, BP is understood to be among the most vulnerable to a falling oil price. Analysts at RBC Capital Market warned in August that BP’s gearing remained well above those of its peers because of share buybacks and recent acquisitions.
⬤ The FTSE 100 was cushioned from the impact of a steep drop in the value of two of its biggest constituents by news that China is turbo-charging planned stimulus to revitalise its economy.
The government said that it would deploy “necessary fiscal spending” to meet its economic growth target of 5 per cent, with reports suggesting that it is considering injecting up to a trillion yuan (£110 billion) into its biggest banks.
• China prepares to inject more cash into economy
The news boosted shares in Prudential, Asia-focused insurer, which rose by 39½p, or 6.1 per cent, to 681½p and Standard Chartered, the bank, which was up by 40½p, or 5.3 per cent, at 803½p.
The announcement also increased the prices of base metals, with three-month copper futures on the London Metal Exchange rising by 0.5 per cent at $9,844.50 per tonne by mid-afternoon after hitting its highest since July 15 at $9,913 earlier in the day.
This boosted the shares of London’s miners. Anglo American was up by 141½p, or 6.2 per cent, to £24.39 and Antofagasta rose by 111p, or 5.8 per cent, to £20.31. Shares in Glencore, the miner and trader, added 19¾p, or 4.9 per cent, to 423p.