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Saudi call for output cut boosts crude prices

Jan 3, 2001
World oil futures firmed yesterday after Saudi Arabia said Opec needed to cut production to stem a slide in prices. International benchmark Brent crude futures initially rose 78 cents on the Saudi remarks to $24.65 a barrel in London and ended 43 cents firmer at $24.30 a barrel. U.S. light crude closed 41 cents up at $27.21 a barrel.

A Saudi official said Riyadh believed the Organization of Petroleum Exporting Countries should cut output by 1.5 million barrels per day (bpd) to stabilize crude at $25 a barrel. Speaking after a weekend summit of Gulf Arab leaders, the official told Reuters, "The ministers of energy and petroleum of the GCC (Gulf Cooperation Council) countries are clearly instructed by the heads of states to do whatever is needed to achieve the targeted price of $25 for the Opec basket."

"As of today's information we think the needed reduction to balance the market is about 1.5 million bpd," the official said. The kingdom's call for a sizeable production cut will carry weight when Opec ministers meet in Vienna on January 17.

A cut of 1.5 million bpd would reduce production for 10 members with quotas, excluding sanctions-bound Iraq, by 5.5 per cent to 25.2 million bpd. That would be enough to reverse the last two Opec production hikes of 2000.

Opec raised supply by a total of 3.7 million barrels a day last year. Opec, which still has bitter memories of a price collapse to below $10 a barrel in 1998, has been trying to tighten its management of prices which skyrocketed to $35 a barrel in October.

Prices have fallen heavily since then and are currently near the lower end of Opec's target range of $22-$28 for a basket of its crudes. The slide came after last year's Opec supply hikes began appearing in global inventory data. Brent fell below $23 a barrel and the Opec basket below $22. Under its informal agreement last year, Opec should cut supplies by 500,000 bpd
if prices stay below $22 for 10 working days.

Figures released by the Opec secretariat yesterday showed the price of its basket of seven crudes were under the cartel's preferred range of $22-$28 for seven working days up to last Friday, nearing the 10 day deadline that would trigger a 500,000 barrel a day cut in production. Price hawk Kuwait said it would lobby Opec for a cutback of 1.5-2.0 million bpd.

Opec states are worried that prices could plummet by the end of the first quarter when peak winter demand dwindles. In Singapore, the Asian crude market was weaker yesterday as Middle East benchmark Oman crude slipped another notch to trade at deeper discounts.

Traders said the latest Oman deals, reported done last Friday, were at around MOG -38 cents and MOG -35 cents. This compares to previous MOG -30 cents trades. The former was sold by a Wall Street trader to a Korean refiner, and the latter from a Chinese trader to a U.S. major.

Traders said that one Oman trade was also done on Dubai related pricing at Dubai -75 cents, sold by a European trader into Thailand, but this could not be confirmed. "The market is looking weak but there could be a bottom already," one trader said. "At this price, it is looking very attractive to buyers."

Among the factors that could floor the market was an expected official selling price (OSP) cut from the Oman Ministry of Oil and Gas (MOG). MOG officials said the retroactive December price will be set by tomorrow.

But the absence of Chinese demand may still pull the market lower., Chinese state traders said they were still just watching the market, and were not ready to move as domestic refiners have given few import orders. Key buyer China had largely stayed out of the Oman market since January, as its refiners cut runs during the year-end due to high products stocks. The Asian light sweet crude's market was steady on Tuesday.

"The market should be about the same as January," one trader with a major said. One major was offering a February 20-24 lifting Australian Cossack cargo at around Tapis APPI +25 cents versus last trades at APPI +18 cents. The medium sweet crude's market however was under pressure.

Although sellers were relaxed, buyers said that there were still ample prompt January availabilities of Indonesian crude's like Minas, Duri and Cinta. Vietnam and Indonesia have February sell tenders for their crude's closing on Thursday.

Some traders however said the market may get a boost as Indonesia raised overseas processing of its crudes. State oil Petromin has signed new third party processing deal to refine 70,000 barrels-per-day (bpd) crude in January to March at Shell's Singapore refinery, with an option to increase the amount by 20 percent, a company official said. In October, Petromin and Shell agreed on the processing of 50,000 bpd.
 
Saudia-Online.com
Source: Gulf News

Related Story in brief 

As dealers consider petroleum stocks adequate this winter, oil prices dropped on Friday finishing the year more than $2 lower than prices at the end of 1999 and $12 lower from the mid-October peak. London Brent blend futures dipped 61 cents to 23.10 a barrel, while U.S. light crude fell 23 cents to $25.62. According to the United States Department of Energy, for the first time since April 1990, U.S. commercial crude oil stocks had recorded a year-on-year surplus. This is a result of OPEC's four production increases and the release of strategic reserves by the U.S. Analysts expect inventories to build further in the first quarter, which prompted several OPEC members to consider production curbs ahead of the second quarter.

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04 January 2001 01:22:42 PM