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Saudi to keep Asia oil supply steady ahead of Opec

Saudi to keep Asia oil supply steady ahead of Opec
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First Published: Tue, Mar 10 2009. 10 55 AM IST
Updated: Tue, Mar 10 2009. 10 55 AM IST
Tokyo: Saudi Arabia surprised its Asian oil customers by telling them it would maintain or even increase crude supplies next month, in another sign that Opec’s most influential member will urge the cartel to refrain from further output cuts when it meets this weekend.
On Monday the Saudi-owned al-Hayat cited a senior source as saying the world’s top oil exporter would urge Opec to comply with existing curbs before considering more output cuts when it meets this weekend. After Opec’s biggest ever production curbs, oil prices have rebounded to trade near $47 a barrel.
Four customers in North Asia said Saudi Aramco had told them the state oil company would maintain April shipments at an estimated 10 to 14% below contracted volumes, unchanged from March, refinery company sources said, declining to be identified because the information was confidential.
Three customers in Japan and South Korea said state oil firm Saudi Aramco had notified them it would raise shipments slightly. One buyer will receive an 8% cut, less than the 10% cut in March, while another will see supply increased by one percentage point to 7% below contracted volumes.
The signs of steady to higher supply contrasted with news from Europe on Monday, where a source with one European oil firm said it would get less Saudi crude, and with news two weeks ago from fellow core Opec member the United Arab Emirates, which told refiners it would deepen cuts in April.
It was also a surprise to Asian traders who had been braced for more cuts.
“We didn’t think the cuts would narrow, we had anticipated steady to larger cuts,” said one of the sources, who said his firm got slightly more heavy crude than a month ago.
Opec has agreed to lower its production by a total of 4.2 million bpd, about 5% of daily world demand, since last September to bolster prices and counter declining consumption.
Compliance with existing curbs is very high at more than 80%, according to independent observers, but that still leaves room for more discipline, and Monday’s newspaper report suggested the kingdom would push for compliance over new action.
“Saudi has informed the presidency of the organization, which is Angola, that there must be... serious compliance with the latest reduction decision taken in December which has prevented oil prices from falling further,” al-Hayat reported.
Saudi Arabia has led the cutbacks, lowering supply to 7.95 million bpd in February, down from 8.02 million bpd in January and below its Opec target of 8.05 million bpd.
Various cartel members have signalled that further cuts could be agreed at the group’s next meeting in March, and some analysts questioned whether oil prices could sustain their upward momentum without the group taking more oil off the market.
“A lot of people were expecting Saudi Arabia to deepen the cuts ahead of the meeting. It looks like demand is going to fall further and Opec will have to cut again,” said Tony Nunan, risk management manager at Tokyo-based Mitsubishi Corp.
“I think we have seen the bottom of prices but it all depends on Opec keeping it supported.”
US crude oil shed early gains after news of the Saudi allocations on Tuesday, trading up 10 cents at $47.17 a barrel, having rebounded from below $35 a month ago.
Saudi seemed to have boosted heavier crude supplies to some buyers, and made a little deeper cut in supply of lighter grades.
“We still have a deeper cut for heavier grades, but the difference between the cuts for light and heavy grades is narrowing,” a source at a Taiwanese firm said.
Traders added there were no changes to the operational tolerance clause for April, a mechanism that other Gulf producers have used in order to constrain supplies.
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First Published: Tue, Mar 10 2009. 10 55 AM IST
More Topics: Oil Supply | Asia | Fuel | Saudi Arabia | Saudi Aramco |