Business | Oil & Gas
Saudis deepen oil supply cuts to Asia and Europe
Top oil exporter Saudi Arabia will make even bigger oil supply cuts to some of its Asian and European cust-omers next month, industry sources said on Monday as the kingdom stepped
- Reuters
- Published: 23:32 December 8, 2008
Tokyo/London: Top oil exporter Saudi Arabia will make even bigger oil supply cuts to some of its Asian and European cust-omers next month, industry sources said on Monday as the kingdom stepped up efforts to halt the steep price slide.
While most Asian refiners appear set to receive steady supplies next month, news of reduced allocations helped push oil prices up six per cent yesterday and suggested Riyadh is not waiting for Opec's December 17 meeting to tighten crude oil exports, to keep oil from falling below $40 a barrel (Dh146.90).
Production cuts
Oil traders had not expected Saudi Arabia to make any further explicit cuts ahead of that meeting, but yesterday at least two oil refiners in Asia were told by state oil firm Aramco that they would get less crude in January than in December. An industry source said cuts were also deepened to some European lifters.
"We were cut 10 per cent...It was more than expected, we thought it would be around 5 per cent like last time," a source with a major customer in Japan said on condition of anonymity because the information isn't public. Refiners measure their cuts versus the volume stipulated in annual contracts.
A second north Asian refiner outside Japan also said its supplies would be cut by about 7 per cent, deeper than the 5 per cent curb that Saudi had given to nearly all its Asian buyers for December after Opec's 1.5 million barrel per day (bpd) output cut.
Oil prices extended earlier gains to more than $2.50 a barrel or 6 per cent after the news. Yesterday morning US crude for January delivery was up $2.34 to $43.15 a barrel, up from its lowest close in two years.
The cuts follow estimates last week showing that Opec met only two-thirds of its pledged November 1 production cut, and that Saudi Arabia remained in excess of its quota.
Opec cut its output by roughly 970,000 bpd in November from October, a Reuters survey showed.
Although Riyadh counted for half that cut, the kingdom was still pumping about 8.92 million bpd, way above its implied target of just below 8.5 million bpd.
Another three refiners in Japan and South Korea said their cuts would remain at 5 per cent below full volumes.
Saudi Arabia normally cuts all its Asian customers by a similar quantity to avoid the appearance of favouritism.
Poor demand
But some refiners have said demand is so poor - and export margins so weak - that they would welcome receiving less Saudi oil. Some have said they explicitly requested lower shipments.
"The deepening of the supply cut to some Asian refiners is due partly to Saudi Arabia preparing for the possibility Opec will extend production curbs at its meeting in Algeria," said Osamu Fujisawa, oil econ-omist at industry consultants FE Associates who has also worked for Saudi Aramco in Japan.
"there has been talk the cuts they made to Europe and the US for December were too deep," Fujisawa added.
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