KUALA LUMPUR (Dow Jones Newswires), December 4, 2008
Saudi Arabian Oil Co.'s surprise increase in official selling prices to Asia, a key market for the state-owned energy giant, may signal that the country is preparing for further reductions in oil supply.
Cartel's Discipline Tested
Saudi Arabia and five other Middle East countries are members of OPEC, a group that pumps about 40% of the world's crude.
OPEC announced supply cutbacks in September and October totaling about 2 million barrels a day. Even though this didn't stop prices from slipping further, the group opted at a November meeting to defer further action until a Dec. 17 gathering in Oran, Algeria.
Given the relatively long lead time of about two months between a decision to cut output and an actual decrease in shipments, it appears Saudi Arabia isn't keen to wait.
Last weekend, Saudi oil minister Ali Naimi echoed earlier comments by King Abdullah, saying that the country wants to see oil prices stabilize around $75 a barrel, a level last traded in October.
Meantime, traders noted signs that other Middle East OPEC members aren't toeing the line on cartel policy.
An official with one of Qatar's largest customers, who asked not to be identified as she isn't authorized to speak to reporters, said Thursday the country's state-owned company didn't cut this month's supply, contrary to official announcements.
Qatar - OPEC smallest member by output - will maintain a 3%-5% cut on term volumes, according to Nasser K. Al-Jaidah, the chief executive officer of state-run Qatar Petroleum International.
Buyers "are the ones who want less, and it makes it possible for us (as producers) to follow OPEC," he told Dow Jones Newswires in an interview Wednesday on the sidelines of an industry conference in Malaysia.
Refiners say shipments of up to 5% below agreed volumes don't count as a formal cut, as term contracts typically include an "operational tolerance" clause that offers suppliers some allowance in case of leakage during loading or delivery.
With the exception of the U.A.E.'s Abu Dhabi National Oil Co., state oil companies from all the other Middle East OPEC members have announced cuts of no more than 5% in supply in the past two months.
OPEC members elsewhere, including Nigeria and Venezuela, are already producing far below target levels and aren't embracing additional output cuts themselves.
Asia's oil refiners, while expressing surprise at the Saudi OSP markups, say they're ready to calibrate their throughput in response to poor product demand; many have slashed operating rates as margins slumped.
Significantly, it's unclear whether Saudi action alone will be enough to reverse the price downtrend.
"It's not the time to raise OSPs" as most refiners are considering more run cuts in January and February next year, said an official with a South Korean refinery.
"I think they will cut (supply)," he said of Saudi Aramco. "But I think the supply cut will still be less than the 'cut' in demand."
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