Saudi cuts April term to 1 Asian buyer, rest steady

Saudi Arabia will reduce crude supply in April to a major Asian buyer ahead of OPEC's meeting next week, the first cut to a big lifter since late last year, but will keep full contracted volumes to others.

The world's top oil exporter will supply crude at 10 percent below nominated volumes next month to a big refiner in northeast Asia, versus full nominated levels in March, industry sources said on Wednesday.

The cut will apply to all light, medium and heavy grades, they added.

A source with the refiner said: "It's not a big issue for us, we can cover that by term volumes from other Middle East countries."

Saudi Arabia will continue to supply full contracted volumes in April to at least seven other Asian term buyers, the sources added.

The last time Saudi Arabia cut term supply to another major Asian buyer was in November, by up to 20 percent.

For most of 2009, Saudi Arabia curbed supplies in line with OPEC agreements. Since January, it had supplied most Asian buyers with full contracted volumes.

US benchmark crude prices broke above $82 a barrel on Wednesday, nearing Monday's eight week highs, but were still mostly in line with the $70 to $80 range Saudi Arabia has said it considers reasonable.

Sources at two European oil companies said Saudi Arabia would keep April volumes steady, as they had expected.

One of the sources said: "It is in line with March - no change."

Industry players in Asia had expected full allocations from Saudi Arabia in April like previous months. But they were surprised by the supply cut to the single major buyer and could not explain the reason.

China, the world's second largest oil consumer, has been running its refineries at high rates for several months, supported by high crude imports, which in February jumped to the second highest on record on a daily basis.

This has raised inventories of refined products as China's economy showed signs of sustained growth momentum.

But for March, top Chinese refineries will cut crude runs by 5.6 percent from record rates in February due to turnarounds and to lower bulging stocks. The refiners also plan to continue product exports.

The Organization of the Petroleum Exporting Countries (OPEC) has left its output ceiling unchanged for more than a year since announcing a record supply curb of 4.2 million barrels per day (bpd) agreed to in December 2008.

However, several members of OPEC have relaxed their compliance with production curbs as global oil benchmarks have been at high levels.

A Reuters survey last month showed that OPEC crude supply rose in February to its highest in 14 months, with members of the group making 53 percent of promised supply cutbacks versus 56 percent in January.

OPEC's top producer Saudi Arabia nudged supply up to 8.22 million bpd, an average of figures from survey participants showed. Estimates of output ranged from an increase of 100,000 bpd to no change.

OPEC is expected to keep oil production targets steady when it meets in Vienna on March 17. But it could raise output later this year as the world recovers from recession, pushing up demand for fuel, a Reuters poll showed.

OPEC ministers say they are content with oil prices where they are and analysts say they are unlikely to do anything to alter the current trading range between $70 and $85 a barrel.

Industry sources also said there are no changes to the operational tolerance level in the Saudi supply allocations, indicating that buyers can still choose to ask for cargoes to be loaded with up to 10 percent more or less crude from contracted volumes. (Reuters)