Saudi pauses after cuts, keeps Asia oil supply steady

DEEP CUT: OPEC is meeting again on Mar. 15 and may mull further supply cuts. (Getty Images)

Saudi Arabia will maintain steady oil supplies to major Asian buyers in March, sources said on Monday, suggesting the world's top oil exporter is waiting see if three months of deepening cuts are enough to shore up prices.

After successively cutting shipments to Asian refiners every month since December, state oil firm Saudi Aramco notified its big customers in Asia at the weekend that supplies in March would be largely unchanged from the month before, trade sources with six refiners in Japan and South Korea said.

That news came as a mild surprise to many traders in Asia, who were bracing for a fourth reduction as Riyadh leads OPEC's efforts to put a floor under oil prices. US crude for March delivery didn’t react to the news, trading at just above $40 on Monday, little changed over the past week.

While OPEC has not agreed any further supply cuts since its biggest ever cut came into effect on Jan. 1, many traders had speculated that the kingdom might act alone to tighten the taps even more, as it has several times in recent months.

OPEC meets again on March 15 and its president told Reuters this month that the group could cut supply again then. Saudi Arabia is already is planning to pump as much as 300,000 bpd below its formal OPEC target for February.  

"We were thinking we may get a little deeper cut," said a source with a refiner.

Four major refiners across Asia will receive anywhere from seven to 15 percent below normal contractual supplies next month, the same as February, four industry sources said, declining to be identified because the information is confidential.

A fifth said the source's company would receive a marginally deeper 10 percent cut versus nine percent, while a sixth said his firm would get a 13-14 percent cut in March, suggesting slightly more crude than in February, when supplies were cut by 14-15 percent.

The kingdom could still choose to deepen supply curbs to Western markets that buy half its exports and which have been harder hit by a global economic recession. European and US allocations were also likely issued over the weekend.

"OPEC and Saudi have followed through (with the agreed supply cuts)," said Jonathan Kornafel, Asia director of US-based Hudson Capital Energy. "They're taking a step back and seeing how it affects the market."

"The OPEC cuts, combined with hopes in stimulus plans... is keeping a floor in the market. We're not seeing the $75 a barrel that OPEC wants, but we're not dropping further."

That stability comes as OPEC makes good on its pledge to cut supply by a total 4.2 million barrels per day (bpd), or 5 percent, in order to offset contracting demand.

"Overall, supplies to most of Japanese buyers were cut by a little more than 10 percent," said an oil trader with a refiner. "But there are some variations.

Traders added that there appeared to be no changes to operational tolerance for March, suggesting refiners can still choose to load each cargo with up to 10 percent more or less crude oil than allocated. Other Gulf producers have cut back tolerance levels in order to constrain supplies.

Saudi Arabia's announcement came two weeks after fellow OPEC producers, the United Arab Emirates and Qatar, notified Asian lifters of March supplies.

The UAE's state oil company gave refiners slightly more of its flagship Murban grade, while small producer Qatar deepened supply cuts to its main Marine crude.

Two buyers said that supply curbs of cheaper, heavier crudes were deeper than the more expensive lighter grades, a trend that was also seen for February allocations.

A third buyer that got a cut said Saudi's supplies of Arab Light and Arab Extra Light were not cut in March.

On the physical side, with Japanese refiners heading toward the weak second quarter with still high inventory levels, analysts saw few signs of a quick turnaround.

"There are not many inquiries for crudes now, so the impact to the market is limited," said Osamu Fujisawa, an oil economist at industry consultants FE Associates. (Reuters)

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