Saudi oil buyers don't want more, output seen flat

Oil companies that buy Saudi Arabian crude have not requested extra supply and sources in the kingdom say production policy is unchanged - indicating steady output despite a jump in prices to US$118 a barrel.

Sources at oil companies in Europe, China and Japan told Reuters they have not asked to buy more crude for March, and also that Saudi state oil company Saudi Aramco has not offered extra barrels.

Industry sources in Saudi Arabia say the kingdom's production policy is unchanged: the supply response will be driven by demand not price. If consuming countries do not order more oil, then Riyadh will not raise output.

OPEC's biggest exporter responded to slower demand at home and abroad by lowering supply by around 700,000 barrels per day (bpd) over the last two months of 2012, a reduction that coincided with a rise in crude prices.

Saudi Arabia is expected to open the taps again in coming months due to higher global demand in the second half of 2013 and a seasonally higher need for crude in domestic power plants. Extra supply may not been seen this month or next, though.

"The bottom line is Saudi exports will rise again," said a source who tracks oil flows for a major oil company. "But this is unlikely in February."

The Saudi cutback in December supported the market, although a senior Saudi oil ministry adviser said the move was not aimed at lifting prices, which Saudi Oil Minister Ali al-Naimi says he would like to see around US$100.

So far, Saudi output has not increased. Oil production was steady in January at 9.05m bpd, an industry source said this week, and supply to the market nudged up to 9.26m bpd due to deliveries from storage.

The drop in output in Saudi and some other members of the Organization of the Petroleum Exporting Countries has brought the group's supply down in January to 30.53m bpd, according to a Reuters survey - the closest it has yet been to OPEC's 30m bpd target adopted a year ago.

An official at a Gulf OPEC country saw no need for an increase in production despite the rally in Brent crude to US$118, since output was still above OPEC's ceiling and the expected demand for OPEC crude.

"It is already higher than what has been agreed, so I don't think there needs to be an increase," said the official, who declined to be identified.

Oil buyers in Asia, which buys the bulk of Saudi crude, and Europe said demand remains seasonally low so there was no need to ask for more.

A buyer in China said it planned to ask for "normal volumes" of Saudi crude in March, while two customers in Japan said they nominated contractual volumes. None of them was offered extra crude.

"Refiners are due to submit their nomination for March supply today, but they are unlikely to seek more as Asia's demand is expected to fall in the second quarter with the end of peak winter demand and as the maintenance season will start," a Singapore-based trader said on Friday.

"Plus, if refiners want additional supply, they can buy spot cargoes as prices are weak."

In Europe, sources with two Saudi customers also said they were not looking to buy more crude and other traders said they were not seeing any sign of extra Saudi supplies.

"At the moment I would say no," said a customer in Europe. "It doesn't appear a more aggressive strategy to sell more volumes."

The lack of any extra Saudi or Gulf production to restrain the rally in prices is leading some in the market to see signs that the price aspiration of US$100 is creeping upwards.

"We know now that the Gulf OPEC members are not ready to do anything at current prices," said Olivier Jakob of Petromatrix. "For a supply price-reaction from OPEC we will have to wait for the top price line of 2011 and 2012 at US$125."