Top exporter Saudi Arabia is set to cut oil supplies further in the new year, potentially taking output below its agreed Opec target, as it strives to shore up a collapsing market, oil market sources said.
It lowered supply to 8.2 million barrels per day (bpd) in December as the oil price dived to less than $40 (Dh146.8), far below the $75 a barrel named by Saudi King Abdullah Bin Abdull Aziz as a fair price.
The kingdom had previously increased production unilaterally to about 9.7 million bpd in August to calm an oil market that shot up to a record of nearly $150 in July.
Since then, it has reduced supplies by roughly a fifth and further “significant” output curbs are expected in February, trade sources said.
“This is because of the price. The Saudis want it higher,” said a major buyer.
Saudi officials could not be reached for comment.
Saudi Arabia and other producers typically tell customers several weeks in advance how much crude they can expect to receive.
In January, it will be pumping almost in line with its target under Opec’s December agreement, effective from January 1, to reduce overall production by 2.2 million bpd following previous cuts since September of 2 million bpd.
“We’ll be at what our quota is – you know we adhere very well,” Saudi Oil Minister Ali Al Nuaimi said earlier this month.
Saudi policy-makers are well aware they cannot boost oil prices overnight, but hope prompt action will lessen the impact of a big increase in inventories as energy use contracts, the sources said.
The decline in demand because of a slower world economy is likely to be exaggerated in the second quarter when consumption typically weakens after the northern hemisphere winter. “Oil prices are likely to come under severe pressure in February and March, so it makes sense for producers to shrink supplies as much as possible before then to try to sustain prices at their current levels,” said an oil industry executive.
Even before Opec announced its latest supply cuts on December 17 in Algeria, Saudi Arabia had already informed its customers they would receive significantly less crude in January.
Sources said it was too soon to tell whether Saudi Arabia was again anticipating wider Opec action or whether it was acting alone. It is already clear the kingdom is shouldering by far the biggest part of the Opec supply curbs. But evidence is mounting smaller producers are also reducing their output.
(Reuters & Gulf News)