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Saudis order oil cuts to U.S., Europe ahead of non-OPEC talks

Published 12/09/2016, 07:37 AM
Updated 12/09/2016, 07:40 AM
© Reuters. A worker walks at Nahr Bin Umar oil field, north of Basra

By Florence Tan, Osamu Tsukimori and Rania El Gamal

SINGAPORE/TOKYO/DUBAI (Reuters) - Saudi Arabia has told its U.S. and European customers it will reduce oil deliveries from January as Russia signaled that a commitment from non-OPEC producers to join OPEC's output limits still faced challenges.

Saudi Arabia told the customers about lower supplies in line with the output reduction agreed by the Organization of the Petroleum Exporting Countries last week, according to a Gulf oil industry source familiar with Saudi oil policy.

"We told our customers of the allocations and the compliance with allocations (for the cuts) for Saudi Arabia is 100 percent," the source said.

He said cuts to Asian refiners would be lower than those to Europe, the United States and to major oil companies.

"We are cutting more in the U.S. because the inventories ... are very high," the source said.

OPEC will meet non-OPEC producing countries in Vienna on Dec. 10, hoping non-OPEC will commit to cutting 600,000 barrels per day after its own members agreed to cut 1.2 million bpd last week.

OPEC sources said nine non-OPEC countries were set to join the meeting: Azerbaijan, Kazakhstan, Oman, Mexico, Russia, Sudan, South Sudan, Bahrain and Malaysia.

So far only Russia and Oman have pledged cuts, with one OPEC source saying Mexico could also contribute. In contrast, Kazakhstan plans to boost output in 2017 as it launches the long-delayed Kashagan project.

Russia is expected to shoulder half of the non-OPEC cut, but on Friday Moscow signaled there were snags that needed to be addressed before a deal could be reached.

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"Russia sees risks ahead of the deal if questions are not resolved," a Russian government source told Reuters.

"One hundred percent compliance is critical for the deal ... It's essential for non-OPEC to have a responsible approach towards the deal," the source said, adding there was also concern about rising OPEC supplies.

NO CUTS FOR ASIA

Sources at eight refiners in Asia told Reuters they had been notified by state oil giant Saudi Aramco that in January it was set to supply full crude amounts.

Of those eight, three refiners said they would load extra volumes they had requested. The sources declined to be identified as they were not authorized to speak to the media.

"It's quite telling as there are not only no supply cuts, but they have given extra volumes," one of the sources said, indicating that the move underscored that producers were eager to maintain market share in Asia.

Some of the extra volumes were committed before the OPEC meeting on Nov. 30, when output cuts were agreed.

"It seems that Saudis do not trust Mr. Sechin after his mockings back in 2008/2009 as he repeatedly promised and disappointed them on cuts," Commerzbank (DE:CBKG) analyst Eugen Weinberg told the Reuters Global Oil Forum, referring to Igor Sechin, the CEO of top Russian oil producer Rosneft. (MM:ROSN)

"I see the Saudi strategy for January deliveries to Asia as a confirmation of this distrust."

Sechin has long been a harsh critic of cooperation with OPEC.

However, Sechin has kept a low profile recently and this week agreed to sell a stake in Rosneft to a consortium of commodities trader Glencore (LON:GLEN) and Qatar - a key ally of Saudi Arabia in OPEC.

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