Saudi Arabia to deepen supply cuts to Asia

Tokyo: Top crude oil exporter Saudi Arabia will deepen its supply cuts in February from January levels to Asian consumers to their lowest in almost five years, industry sources said yesterday, as it strives to support oil prices.

Adding to larger curbs from this month onwards by several Opec peers, the move by Opec's most influential member could put a firmer floor beneath the price of Middle East crude and helped send global oil back above $42 a barrel yesterday.

Lower term supplies have forced Asian refiners back to the Middle East spot market, pushing up price differentials of most spot crudes last month, and more rises are expected this month at the expense of grades that are linked to Brent.

Sources with seven Asian buyers confirmed that state oil company Saudi Aramco had notified them of deeper cuts for February, ranging from seven to eight per cent to 15 per cent, against cuts of 5-10 per cent for January.

"The cut was deeper than last month & about 14, 15 per cent," a major source at a customer in Japan said on condition of anonymity as the information is not public.

By 0421 GMT, oil stood at $42.79 a barrel, up 79 cents, after having lost around 15 per cent over the past three sessions on signs of worsening demand from the United States.

The volumes curbed differ from one refiner to the next as Saudi Arabia likely cut exports of its heaviest and lowest quality grades the most.

"Customers got different cuts because the ratio of grades - Arab Extra Light, Arab light, Arab Medium and Arab Heavy - is different company by company," said a trader.

"Cuts should be deeper than average for customers that lift mainly Arab Medium and Arab Heavy."

With cuts to some refiners as deep as 15 per cent, curbs to Asia for February are likely to exceed 10 per cent overall, making it their largest since April 2004, when Saudi Arabia cut supplies by between 10 and 15 per cent.

An overall cut of 15 per cent would be equivalent to around 525,000 barrels per day (bpd) less of Saudi crude heading to Asia, with an average cut of 11 percent worth about 385,000 bpd.

Customers around the region had expected Saudi Arabia to cut supplies more to stay in line with Opec's aim to reduce output and boost oil prices that have fallen more than $100 from a record-high above $147 a barrel last July.

Refiners measure supply cuts versus the volume stipulated in annual contracts.

Opec agreed last month to cut output by a record of 2.2 million bpd, taking total curbs since September to 4.2 million bpd, equivalent to five per cent of global oil supply.

Saudi Aramco had pre-empted the reduction by deepening its supply cuts to Asia for January from five per cent in December.